U.S. primary insurance group Chubb is returning to the catastrophe bond market for reinsurance cover for the first time in two years, with its sixth cat bond transaction, named East Lane Re VI Ltd. (Series 2014-1), a four-year multi-peril deal.
Chubb has been a regular issuer of cat bonds, using them for capital market investor backed reinsurance protections since 2007, sometimes issuing a new deal each year, sometimes with a two-year gap between them.
In the past the insurer has issued East Lane Re Ltd. in April 2007, East Lane Re II Ltd. in March 2008, East Lane Re III Ltd. in February 2009, East Lane Re IV Ltd. in March 2011 and East Lane Re V Ltd. in March 2012.
So it’s been two years since Chubb tapped the capital markets for reinsurance protection through a cat bond deal and the insurance linked investor community will be delighted to see the insurer back and issuing a multi-peril deal which could be a sizeable transaction, given the size of the insurers reinsurance tower.
With East Lane Re VI Ltd. Chubb is seeking a four-year source of fully-collateralized reinsurance protection for the perils of U.S. named storms, earthquakes, severe thunderstorms and winter storms, Artemis understand. The transaction is being marketed with a preliminary size of $225m, but that could grow if investor demand is high and pricing deemed attractive.
A single Series 2014-1 Class A tranche of notes is proposed, with the $225m of notes being sold to collateralize a reinsurance contract protecting Chubb from these U.S. perils on a per-occurrence basis. The cat bond will utilise an indemnity trigger, it is understood, with the protection being for a selection of Chubb’s personal and commercial property exposures.
The actual cedent for the East Lane Re VI cat bond is a range of Chubb group companies, while Chubb & Son is described as the sponsor of the transaction. The covered area of this cat bond is predominantly in the U.S. northeastern states as well as the District of Columbia.
The East Lane Re VI Series 2014-1 catastrophe bond notes have an attachment point of $3 billion of losses to Chubb companies and an exhaustion point at $3.3 billion, Artemis understands, which could suggest the deal might upsize to cover the full $300m layer.
The attachment probability is 0.87%, the expected loss 0.82% and the exhaustion point 0.77%. The transaction will feature a variable reset feature, allowing it to be reset with different attachment and exhaustion, as long as the expected loss remains within a range of 0.75% to 1%. The coupon paid to investors would be adjusted accordingly, commensurate with any change in risk, it is understood.
The transaction is being marketed with a proposed coupon guidance range of 3% to 3.75%, sources said.
Artemis understands that Goldman Sachs and GC Securities are structuring the deal and acting as bookrunners. Citigroup and Deutsche Bank are joint bookrunners. Willis Capital Markets & Advisory is co-manager for the transaction. Risk modelling is being undertaken by RMS.
East Lane Re VI Ltd. is a lower risk cat bond than some of Chubb’s previous offerings but should be well received by the investment community given its multi-peril nature and Chubb’s size and history with the cat bond market. The transaction is slated to complete in early March, we’ll update you as further information becomes available.