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Akibare Re Ltd. (Series 2016-1)

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Akibare Re Ltd. (Series 2016-1) – At a glance:

  • Issuer: Akibare Re Ltd. (Series 2016-1)
  • Cedent / sponsor: Mitsui Sumitomo Insurance Co. Ltd.
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Japan typhoon
  • Size: $200m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Mar 2016

Akibare Re Ltd. (Series 2016-1) – Full details:

This is the third Akibare named catastrophe bond transaction from Mitsui Sumitomo, following the Akibare Ltd. deal in 2007 and the Akibare II Ltd. in 2012, both of which were providing Japan typhoon reinsurance protection. The $130m Akibare II cat bond matures at the end of March 2016, so this new deal will replace and potentially upsize that coverage.

People familiar with the deal said that Mitsui Sumitomo is seeking a new four-year source of collateralised reinsurance protection for its Japanese typhoon exposures. Akibare Re Ltd. will issue a single Class A tranche of notes, which is said to be $175m in size.

The notes will provide Mitsui Sumitomo with annual aggregate reinsurance protection on an indemnity trigger basis for losses from Japanese typhoons impacting the country and which cause a loss above a JPY 5 billion franchise deductible across the four-year term, we understand.

The notes will attach at JPY 300 billion of losses and cover a layer up to JPY 340 billion, giving them an attachment probability of 1.36% and an expected loss of 1.19%. The notes are said to be being marketed to investors and ILS managers with price guidance of 2.5% to 3%, we’re told, giving a multiple of 2.3 times the expected loss at the mid-point of that range.

Update 1:

The Akibare 2016-1 catastrophe bond upsized by almost 15% to $200 million during marketing.

At launch the Class A notes came with price guidance of 2.5% to 3%. Demonstrating the attraction of diversifying perils and their ability to drive down prices, even at lower risk/return levels, we understand that pricing was adjusted today to the lower end of that guidance range, at a coupon of 2.5%.

With the now $200 million tranche of Akibare Re 2016-1 notes having an expected loss of 1.19%, the new pricing level would see investors receive a multiple of 2.1 times the expected loss. That’s aligned with the multiple of other remote risk cat bond diversifiers in the Japanese region, particularly from such large and established insurance group sponsors.

Update, Feb 2019:

The Akibare Re 2016-1 catastrophe bond is considered at-risk of loss due to Mitsui Sumitomo’s rising ultimate losses from Japanese typhoons that struck in 2018, largely typhoon Jebi but possibly also including some impacts from typhoons Trami and Prapiroon.

The secondary market is pricing the notes for a roughly 30% loss, bids of around 70 cents on the dollar, which suggests the market sentiment is for a loss of principal of around $60 million currently.

Update, Apr 2019:

Ongoing loss creep from Japanese typhoon events has driven Mitsui Sumitomo’s ultimate losses higher, resulting in the Akibare Re 2016-1 catastrophe bond notes being marked down even further.

The notes are now marked down to as low as 20 cents on the dollar on some broker pricing sheets, suggesting a roughly 80% loss of principal from the $200 million tranche of notes, which could equate to as much as $160 million.

Update, May 2019:

It’s now expected that the $200 million of Akibare Re 2016-1 cat bond notes will be marked down to close to zero on broker pricing sheets today, to reflect the new expectation that this will be a total loss of principal for the investors and funds holding this cat bond.

Continued loss creep has driven Mitsui Sumitomo’s loss estimates higher and according to specialist cat bond and ILS investment fund manager Plenum Investments the aggregate loss from across four Japanese storms in 2018 has now risen to JPY 367 billion, which is actually above the exhaustion point for the notes that was set at JPY 360 billion.

So that suggests a 100% loss of principal for holders of the Akibare Re 2016-1 catastrophe bond is almost guaranteed.

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