Tokio Marine’s Kizuna Re cat bond pricing drops

The latest catastrophe bond from Japanese primary insurance group Tokio Marine & Nichido Fire Insurance Co. Ltd. has seen its pricing drop while being marketed, as the $200 million Kizuna Re II Ltd. (Series 2018-1) Japan earthquake transaction looks set to complete with one tranche at the mid-point and another at the bottom of guidance.

With its latest catastrophe bond, Tokio Marine & Nichido Fire is seeking to secure a source of capital markets backed Japanese earthquake reinsurance protection through the issuance and sale of notes to cat bond and ILS investors.

The transaction, which launched at the start of this month, will see special purpose vehicle Kizuna Re II issuing two tranches of notes, which will be sold to investors to collateralise the underlying Japanese quake reinsurance agreements with the sponsor.

The reinsurance protection from the Kizuna Re II 2018 cat bond will protect Tokio Marine & Nichido Fire against losses from earthquakes in Japan, including shake, tsunami, fire, flooding and sprinkler leakage, over a five-year term and on a three-year aggregate indemnity trigger basis.

We’re told that the transaction has not been upsized, as this stage, remaining as a $200 million cat bond for the sponsor. However the pricing guidance has now been updated and one tranche has dropped to the bottom of guidance, while the other looks like it will settle at the mid-point.

The $150 million Series 2018-1 tranche of Class A notes, which have a three-year expected loss of 0.35%, 0.12% annualised, and were initially offered to investors with coupon price guidance in a range from 1.75% to 2%, are now set to price at the mid-point with a coupon of 1.875%, we’re told.

With this tranche, which are relatively remote in terms of risk, it’s possible that there is simply a minimum return that investors are looking for from a cat bond investment, no matter how low risk it is.

The second $50 million Series 2018-1 Class B layer of notes, which are much riskier with a three-year expected loss of 2.98%, 0.99% annualised, and were offered to investors with pricing guidance in a range from 2.5% to 3%, are set to price at the low-end of that range, at 2.5%.

As a result of the moves in price guidance it now looks like this cat bond will see its pricing fall slightly below levels where other recent Japanese quake cat bonds have completed, suggesting pressure on catastrophe rates in Japan at the April reinsurance renewals perhaps.

This Kizuna Re II 2018-1 cat bond will be priced this week and issued before the end of March, according to sources, so falling into first-quarter 2018 cat bond issuance which already stands at $2.49 billion, according to Artemis data.

We will update you should any details of this Kizuna Re II Ltd. (Series 2018-1) catastrophe bond change before completion and you can read all about this and every other cat bond transaction in the Artemis Deal Directory.