Swiss Re Insurance-Linked Fund Management

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Acorn Re Ltd. (Series 2023-1)

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Acorn Re Ltd. (Series 2023-1) – At a glance:

  • Issuer: Acorn Re Ltd.
  • Cedent / sponsor: Hannover Rück SE / Oak Tree Assurance, Ltd.
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: U.S. earthquake
  • Size: $150m
  • Trigger type: Parametric
  • Ratings: NR
  • Date of issue: Jun 2023

Acorn Re Ltd. (Series 2023-1) – Full details:

This is the fourth parametric earthquake catastrophe bond transaction in the Acorn Re Ltd. series of deals and the first where its coverage will overlap with an existing deal, presumably reflecting a desire to stagger maturity of catastrophe coverage for the beneficiaries.

All of the Acorn Re parametric catastrophe bond deals have been brought to market with Hannover Re acting as the ceding reinsurance company, sitting in front of a single named ceding insurer, Oak Tree Assurance Ltd.

Oak Tree Assurance is a Vermont based workers compensation captive insurer that is owned by the Kaiser Permanente group of health plan companies.

Meaning that these Acorn Re, U.S. west coast focused parametric earthquake catastrophe bonds, ultimately provide reinsurance coverage to the Kaiser Permanente workers compensation captive, covering its insured exposure to earthquake risks across that region (largely centred on California).

This new currently $100 million Acorn Re 2023-1 cat bond will, like the other Acorn Re deals, also provide some additional protection to other Hannover Re reinsureds, which have exposure within the parametric earthquake box as well, should a major quake event occur.

Acorn Re Ltd. is seeking to issue a single Class A tranche of notes, currently sized at $100 million.

These notes will be sold to cat bond investors and the proceeds used to collateralize an underlying retrocessional reinsurance agreements between Acorn Re and Hannover Re, which in turn enters into a reinsurance agreement with the Kaiser Permanente captive, Oak Tree Assurance, while also with some of Hannover Re’s other reinsureds that have exposure in the parametric box.

As a result, this $100 million or greater of Acorn Re 2023-1 cat bond notes will provide the covered parties, Kaiser Permanente via the Oak Tree Assurance Ltd. workers compensation captive, and the other reinsureds of Hannover Re, with a source of per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region, backed by the capital markets.

The covered area appears similar to previous Acorn Re cat bonds, so focused on California where most of the expected loss is located, but also covering events that occur in the surrounding states of Oregon, Washington, Nevada, Utah, Idaho, Arizona, British Columbia in Canada, as well as Baja California and Sonora states in Mexico and some offshore areas of the Pacific.

Which reflects the fact that California makes up more than 85% of the expected loss for the Acorn Re 2023-1 catastrophe bond notes, we understand, while quakes hitting the surrounding area are encapsulated by the parametric box extending more widely.

The new Acorn Re cat bond transaction will provide its beneficiaries with more than three years of protection, with the maturity of the Acorn Re 2023-1 cat bond notes scheduled for the end of October 2026.

A sliding scale parametric trigger is again used, so different payout percentages are possible dependent on the magnitude and location of earthquake loss events.

The $100 million of Series 2023-1 cat bond that Acorn Re Ltd. is issuing come with an annualised initial attachment probability of 1.17% and an annualised initial expected loss of 0.91%, we’re told.

The $100 million of notes are being offered to investors with coupon guidance in a range of 4.75% to 5.5%, sources told Artemis.

Update 1:

We’re told the target size for this Acorn Re 2023-1 parametric quake catastrophe bond has been increased, with now up to $175 million of protection sought.

At the same time, the price guidance has been slashed, with the spread now in a range from 4.25% to 4.75%.

Update 2:

We’ve now learned that the Acorn Re 2023-1 parametric quake catastrophe bond has been priced to provide $150 million of parametric earthquake protection, so below the upper-end of revised the target size.

While the notes were eventually priced to pay investors a spread of 4.35%.

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