The target size for Bermudian reinsurance firm Everest Re’s latest catastrophe bond issuance has increased by 75%, with the reinsurer now seeking $525m of collateralized retrocessional reinsurance from the twin Kilimanjaro Re Ltd. (Series 2018-1) and Kilimanjaro Re Ltd. (Series 2018-2) transactions.
Everest Re returned to the catastrophe bond market recently with a new Kilimanjaro deal that looks to replace and extend the reinsurance coverage that its soon to mature $450 million Kilimanjaro Re 2014-1transaction has provided.
It looks like this will be successful, with the new Kilimanjaro Re 2018 set to upsize significantly, while at the same time the pricing has dropped to below the initial guidance on every tranche of notes.
When the deal launched, Everest Re was targeting at least $300 million of coverage across the two series and four tranches of notes.
All of the notes will provide the firm with fully-collateralized reinsurance and retro protection against losses from named storms and earthquakes across the U.S., Puerto Rico, U.S. Virgin Islands, District of Colombia and Canada, on a weighted industry loss index trigger and annual aggregate basis.
The notes from the Kilimanjaro Re 2018-1 issuance are targeting four years of protection, while the Kilimanjaro Re 2018-2 issuance is targeting five years. Each series has one higher risk and one lower risk tranche of notes and aside from the duration of the coverage, the risk is otherwise identical.
From launch, the Series 2018-1 Class A-1 and Series 2018-2 Class A-2 notes, which are both the higher risk layers with an initial expected loss of 8.5%, were targeting at least $50 million of coverage across the pair and were offered to investors with price guidance in a range from 13.25% to 14.25%.
Both of these Class A tranches (four-year and five-year) are now set to secure Everest Re $62.5 million of protection each and the price guidance has plummeted to below the initial guidance, now looking set to be fixed at 12.5%, so representing very efficient execution.
Meanwhile, the Series 2018-1 Class B-1 and Series 2018-2 Class B-2 notes, which are the lower risk layers, with their initial expected loss of 2.08%, launched targeting at least $250 million of coverage across the pair and were offered to ILS investors with price guidance in a range from 5% to 5.5%.
Now, the two Class B tranches (four-year and five-year) are going to secure $200 million each of reinsurance protection for Everest Re, we understand, while the pricing has again dropped significantly, falling to 4.65%, so below the initial guidance.
With this deal it now looks like Everest Re will extend its leadership at the top of our cat bond sponsor leaderboard, where it currently has $2.825 billion of catastrophe bond coverage in-force.
With this new deal now set to secure $525 million of coverage, more than the maturing 2014 cat bond, Everest Re’s lead will jump further again and at these pricing levels it’s clear the cat bond investor-base’s appetite for new risk remains very high, resulting in attractive pricing for the reinsurer.