Acorn Re Ltd. (Series 2025-1)

This is the sixth catastrophe bond transaction in the Acorn Re Ltd. parametric earthquake series of deals, brought to market again by global reinsurance firm Hannover Re.

As with the five Acorn Re parametric catastrophe bonds issued in previous years, this sixth issuance from the structure is being brought to market by Hannover Re, acting as the ceding reinsurance company, sitting in front of and providing protection to a single named ceding insurer, Oak Tree Assurance Ltd. while also sourcing protection to support other reinsurance deals it has entered into in the covered area.

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

As with all of the previous Acorn Re cat bond deals, this is a U.S. west-coast focused parametric earthquake catastrophe bond, providing reinsurance coverage to the Kaiser Permanente workers compensation captive, covering its insured exposure to earthquake risks across that region (largely centred on California).

Also in the same way as the earlier Acorn Re cat bond deals, this new issuance can also provide protection to other Hannover Re reinsureds, that have exposure within the parametric earthquake boxes should a major quake event occur.

For this Series 2025-1 issuance, Bermuda-based special purpose insurer (SPI) Acorn Re Ltd. is seeking to issue a single Class A tranche of notes, with the current offering size being $200 million.

The $200 million of Acorn Re Series 2025-1 Class A notes will be sold to cat bond investors and the proceeds of that sale be 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 the notes provide protection to Hannover Re for losses to its other reinsureds that have exposure in the parametric box, we understand.

The Acorn Re 2025-1 Class A 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.

We are told the notes will have a three year term, running across three annual risk periods from November 1st 2025 to the end of October 2028.

The main focus of the coverage remains earthquakes in California. But the covered region in the parametric box structure also includes the same west-coast US spread as previous Acorn Re deals, 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, as well as some offshore areas of the Pacific.

California earthquake risk contributes the majority of the expected loss for these parametric cat bond notes, at somewhere north of 80%, we understand.

As in the case of the previous Acorn Re parametric cat bond deals, a sliding scale of payouts is again used for the trigger design. So different payout percentages would be activated depending on the magnitude and location of earthquake loss events, starting at a 25% payout as a minimum, sources said.

The $200 million tranche of Acorn Re 2025-1 Class A notes come with an initial attachment probability of 1.26%, an initial expected loss of 0.96% and are being offered to cat bond investors with price guidance for a spread in a range from 2.5% to 2.9%.

Update 1:

The Acorn Re 2025-1 Class A notes are now targeted at between $225 million and $275 million in size, while their pricing has been lowered to guide for a spread in a range from 2% to 2.5%.

Update 2:

This issuance of Acorn Re 2025-1 Class A catastrophe bond notes was eventually finalised at $240 million in size, while their pricing was finalised to pay investors a risk interest spread of 2.35%, so below the initial guidance range.