Kilimanjaro II Re 2017 cat bond targets $600m of cover for Everest Re

Global reinsurance specialist Everest Re is returning to the catastrophe bond market seeking $600 million or more of retrocessional protection split between two series of Kilimanjaro II Re Limited cat bonds, in 2017-1 and 2017-2 issues.

According to sources, Everest Re has come to market with both the Kilimanjaro II Re Ltd. (Series 2017-1) and Kilimanjaro II Re Ltd. (Series 2017-2) transactions at the same time.

The difference between the two series is said to be purely the length of the coverage, with the 2017-1 series issued by Kilimanjaro II Re set to provide their reinsurance protection across a four-year term, while the 2017-2 series will have a five-year term.

These will be Everest Re’s fourth and fifth series of cat bond notes under a Kilimanjaro named program, following on from the $450 million Kilimanjaro Re Ltd. (Series 2014-1), the $500 million Kilimanjaro Re Ltd. (Series 2014-2) and the most recent $625 million Kilimanjaro Re Ltd. (Series 2015-1).

This new Kilimanjaro II Re cat bond isn’t the first to have a five-year term for Everest Re, the 2014-2 cat bond was also a five-year transaction, offering its reinsurance protection across a longer period for the sponsor.

We’re told that both series of Kilimanjaro II Re cat bond notes will be split into three tranches, with each providing annual aggregate cover against losses from named storms and earthquakes across the U.S. (including Puerto Rico) and Canada, on an industry loss basis and featuring a PCS trigger.

Each of the six tranches of notes to be issued in the two series will feature a $100 million franchise deductible, we understand, and the industry loss index will be territory weighted.

The 2017-1 tranches cover precisely the same risk layers as the 2017-2, with just the length of the term of reinsurance coverage the difference.

The Kilimanjaro II Re 2017-1 Class A-1 notes and Kilimanjaro II Re 2017-2 Class A-2 notes cover losses from an attachment point of $2.156 billion up to an exhaustion point of $2.597 billion, have an initial attachment probability of 6.53% and an expected loss of 5.74%.

Everest Re is targeting $150 million of cover across the 2017-1 Class A-1 notes and 2017-2 Class A-2 notes, we understand, and both are offered to investors with broad price guidance of 9.75% to 10.5%.

The Kilimanjaro II Re 2017-1 Class B-1 notes and Kilimanjaro II Re 2017-2 Class B-2 notes will cover losses from their attachment point of $2.597 billion up to an exhaustion point of $3.663 billion, have an initial attachment probability of 4.97% and an expected loss of 3.85%.

Everest Re is targeting $300 million of cover across these two tranches, the 2017-1 Class B-1 notes and 2017-2 Class B-2 notes, with them both offered to investors with price guidance of 7.25% to 8%.

Finally, the Kilimanjaro II Re 2017-1 Class C-1 notes and Kilimanjaro II Re 2017-2 Class C-2 notes will cover losses from attachment at $3.663 billion up to an exhaustion point of $4.235 billion, have an initial attachment probability of 2.92% and an expected loss of 2,23%.

Everest Re is targeting $150 million of cover split across these two tranches, the 2017-1 Class C-1 notes and 2017-2 Class C-2 notes, with them both offered to investors with price guidance of 6% to 6.75%.

So it’s difficult to know exactly what size the two series could end up, both due to Everest Re’s history of upsizing catastrophe bonds to take advantage of fully collateralized reinsurance, but also as the marketed sizes are across the series.

If the five-year terms Series 2017-2 tranches of notes see sufficient demand from investors it would not be surprising to see those three tranches complete at a much larger size than their four-year 2017-1 versions, or even for the 2017-1 series to not be issued at all if investors are happy to fully support the five-year term.

The Kilimanjaro II Re cat bond is therefore a good test of ILS investor appetite for longer duration transactions and five-year term retrocessional reinsurance risk.

We’ve entered this transaction into our Deal Directory as two separate catastrophe bonds, one for each series of notes both listed at $300 million for now, so as Kilimanjaro II Re Ltd. (Series 2017-1) and Kilimanjaro II Re Ltd. (Series 2017-2).

This will allow us to track deal size and pricing as it develops, including differences across the two series and their differing risk terms. We’ll keep you updated as and when additional information emerges.