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Akibare Re Pte. Ltd. (Series 2020-1)

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Akibare Re Pte. Ltd. (Series 2020-1) – At a glance:

  • Issuer: Akibare Re Pte. Ltd.
  • Cedent / sponsor: Mitsui Sumitomo Insurance Co. Ltd.
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Japan typhoon, Japan flood
  • Size: $100m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Mar 2020

Akibare Re Pte. Ltd. (Series 2020-1) – Full details:

This new catastrophe bond is the fifth transaction to take the Akibare Re name that has been sponsored by an entity of the MS&AD Insurance Group.

Mitsui Sumitomo Insurance Co. Ltd. is the beneficiary of the coverage for this fifth Akibare Re catastrophe bond transaction.

The sponsor has moved domicile with this transaction, as this new deal is hosted in Singapore and will be issued through a Singapore domiciled Special Purpose Reinsurance Vehicle (SPRV), named Akibare Re Pte. Ltd.

So it’s assumed that MS&AD Holdings is benefiting from the Singapore ILS grant for its first issuance to be domiciled there.

The Singapore domiciled issuer Akibare Re Pte. Ltd. will seek to issue a single tranche of Series 2020-1 Class A notes that are currently sized at $75 million and will be sold to investors with the proceeds providing collateral to underpin a reinsurance agreement between the issuer and the sponsor Mitsui Sumitomo.

The $75 million of Akibare Re 2020-1 Class A notes will provide Mitsui Sumitomo with a capital market investor backed source of indemnity and per-occurrence reinsurance protection against certain losses from Japanese typhoons and Japanese flood events, across a four-year term.

The coverage is for Mitsui Sumitomo’s fire insurance policy portfolio, which includes personal and commercial property risks, we understand.

The single Series 2020-1 Class A tranche to be issued by Akibare Re Pte. Ltd. is currently offering investors $75 million of notes.

But we’re told the notes will cover a layer of Mitsui Sumitomo’s reinsurance tower that is approximately $275 million in size, giving plenty of room for the issuance to grow if cat bond investor demand is sufficient to support it.

The notes will have an attachment point that sits around the US $3 billion level, giving them an initial expected loss of 0.81%, we understand.

The $75 million of Class A notes are being marketed to investors with price guidance in a range from 2.5% to 2.75%, sources said.

The sponsor had previously claimed on one of its catastrophe bonds in the last year, after losses from typhoon Jebi ate through the reinsurance layer of coverage provided by the Akibare Re Ltd. (Series 2016-1) deal.

So it’s natural to assume pricing would increase for this new Japanese wind and flood focused cat bond, especially as reinsurance pricing in general for Japan is expected to rise in price significantly at the upcoming April 1 renewals.

For comparison, the $100 million Class B tranche of notes from MS&AD’s Akibare Re Ltd. (Series 2018-1) catastrophe also covered Japan typhoon and floods and had an initial expected loss of 0.99% but saw the coupon priced at 1.9%.

Which suggests a not insignificant price increase for this 2020 transaction, which will be welcomed by ILS funds and cat bond investors as they continue to absorb losses from Japanese typhoon events.

Update 1:

The targeted size has lifted, we’re told, with the deal now aiming for between $75 million to as much as $100 million in issuance.

But we’re now told that the price guidance has lifted to the top-end of the launch range, with the notes offered to investors with a coupon of 2.75%.

With the expected loss of the Akibare Re 2020-1 Class A notes lower than the 2018 tranche we mentioned above at 0.81%, but the pricing some 45% higher, this transactions gives us a decent measure for where reinsurance pricing for loss affected Japanese wind risks are heading for the April renewals (a roughly 45% to 50% risk adjusted increase for this deal).

Update 2:

Mitsui Sumitomo’s new Akibare Re 2020-1 catastrophe bond eventually settled at a 33% upsized $100 million in size and with pricing of 2.75%, so a roughly 45% to 50% risk adjusted increase in rate from the Japanese insurers previous cat bond issuance.

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