Acorn Re Ltd. (Series 2024-1)

This is the fifth transaction in the Acorn Re Ltd. parametric earthquake catastrophe bond series of deals and the first to feature two tranches of notes, each with different maturity profiles.

Acorn Re Ltd. is seeking to issue two tranches of notes, each currently sized at $200 million.

A Class A tranche of notes would provide coverage over a three-year term, while a Class B just over a single year.

It’s possible the strategy here is to further stagger the coverage that the Acorn Re series of cat bonds provides. The last Acorn Re issuance, in 2023, was the first time a new deal was brought to market prior to maturity of the previous issuance as the beneficiaries of the coverage looked to begin staggering their cat bond maturities, it seemed. This may be a further reflection of this desire.

Both tranches of notes will be sold to cat bond investors and the proceeds used to collateralize underlying retrocessional reinsurance agreements between Acorn Re and Hannover Re. Hannover Re in turn then enters into reinsurance agreements 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, we understand.

The two tranches of Acorn Re 2024-1 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 multi-year source of per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region, backed by the capital markets.

Once again, the majority of the exposure underpinning the cat bond will be California based, while the covered region appears the same west-coast US spread, so 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.

As with previous deals as well, a sliding scale of payouts is again used for the parametric trigger, so different payout percentages are possible dependent on the magnitude and location of earthquake loss events, starting from a 25% payout as a minimum, we are told.

The $200 million Acorn Re 2024-1 Class A tranche of notes will provide protection across a three-year term, we understand, while the $200 million Acorn Re 2024-1 Class B tranche will provide coverage for just a single year.

Both tranches of notes feature exactly the same risk metrics and pricing, with an initial attachment probability of 1.23%, an initial expected loss of 0.88% and price guidance in a range from 3.5% to 4.1%, sources said.

Update 1:

We understand that the targeted issuance size for this Acorn Re 2024-1 parametric earthquake catastrophe bond has been increased, with up to $450 million in reinsurance now being sought from the capital markets.

Both of the tranches of notes are now offered at between $200 million and $225 million, we are told.

At the same time, the price guidance for the notes has been lowered, with a revised range of 3% to 3.5% now offered to investors.

Update 2:

We now understand that this issuance has been priced with both tranches of notes upsizing to $225 million each, for total parametric risk transfer capacity secured from the capital markets of $450 million.

As a result, a $225 million tranche of Class A notes will provide three years of protection, while a $225 million tranche of Class B notes will provide one year.

Both tranches of notes have now been priced with the spread finalised to pay investors 3.1%, so below the initial guidance range, but not quite at the bottom of the reduced guidance that had been on offer.