Baltic PCC Limited (Series 2022-1)

Pool Re, the UK government-backed mutual terrorism reinsurance facility, is back in the catastrophe bond market and seeking a UK £75 million (approx. US $102m) renewal of its landmark terror catastrophe bond.

As in Pool Re’s 2019 cat bond, the new Baltic PCC 2022-1 issuance will only provide Pool Re with cover against terror losses that occur in England, Scotland and Wales.

UK domiciled special purpose reinsurance vehicle Baltic PCC Limited is issuing a single tranche of Series 2022-1 notes, on behalf of its second protected cell, we’re told, with the target being to sell at least UK £75 million of notes to cat bond investors.

The proceeds of the sale of the notes will be used to collateralise a retrocessional reinsurance agreement between Baltic PCC and Pool Reinsurance Company.

Once again, Pool Re is seeking three years of retro terrorism reinsurance coverage with its second Baltic PCC cat bond, with the term slated to mature after the end of February 2025, we’re told.

The coverage will be on an indemnity trigger and annual aggregate basis, so the Baltic PCC 2022-1 terror cat bond will provide Pool Re with both occurrence protection for major terror attacks and frequency protection for a series of small terrorist attacks.

As with the 2019 deal, this is a relatively unusual indemnity retro cat bond, as retro cat bonds are more typically index-based.

But with Pool Re mutualising risk from its members and because of the nature of the exposures it writes, an indemnity structure becomes more achievable and so this new cat bond will fit neatly into the terror reinsurers retro tower.

We’re told that the new Baltic PCC terror cat bond notes will attach at £500 million of losses to Pool Re and cover a share of a layer up to exhaustion at £700 million, which is precisely the same attachment and exhaustion as the 2019 cat bond deal.

The single currently UK £75 million tranche of Series 2022-1 notes that Baltic PCC Limited is looking to issue will have an initial attachment probability of 2.59%, an initial expected loss of 2.38% and are being offered to cat bond investors with price guidance in a range from 5.25% to 5.75%.

Update 1:

Pool Re successfully upsized its new Baltic PCC 2022-1 catastrophe bond to UK £100 million (approx. US $131m) in size, while the notes were priced at the mid-point of guidance at 5.5%.

For comparison, the Baltic PCC 2019 terror cat bond notes carried an initial expected loss of 2.71% and priced at the top-end of the initial guidance, to offer investors a 5.9% coupon (a 2.18 multiple of EL at market).

This new Baltic PCC 2022 terror cat bond will see investors paid a multiple of EL at market of 2.3 times, so despite the diversifying nature of the peril this still reflects the firming of the catastrophe bond market witnessed since the 2019 issuance.