Baltic PCC Limited (Series 2025-1)

Pool Re, the UK government-backed mutual terrorism reinsurance facility, has returned to the catastrophe bond market seeking a UK £100 million (approx. US $130m) second renewal of its landmark terror catastrophe bond, which will be the third in the Baltic cat bond series.

UK domiciled special purpose reinsurance vehicle Baltic PCC Limited offering investors a single tranche of Series 2025-1 notes, on behalf of a third protected cell, and the target being to secure at least UK £100 million (approx. US $130m) of retrocessional reinsurance protection from the catastrophe bond market.

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

Pool Re is seeking three years of retrocessional terrorism reinsurance coverage with its third Baltic PCC cat bond, with the term of this 2025-1 issuance slated to mature at the end of March 2028, we understand.

The Baltic PCC 2025-1 cat bond notes will provide Pool Re with terrorism retrocession on an indemnity trigger and annual aggregate basis, meaning the reinsurer will benefit from both a form of occurrence protection for major terror attacks and frequency protection for a series of smaller terrorist attacks, across England, Scotland and Wales, but not Northern Ireland.

Typically, retro cat bonds use an industry loss trigger, but as Pool Re mutualises the risk from its members that helps to make an indemnity structure more appropriate coverage in this case and fit within its traditional retro tower.

We understand that the cat bond coverage closely mirrors the traditional Pool Re retro program, providing coverage for commercial property losses caused by conventional terrorism attacks, plus nuclear, biological, chemical, or radiological attacks (NBCR), but not nuclear facility impacts themselves which are carved out, and also covers physical damage from cyber-triggered terrorist losses, sources said.

Given the growth of the Pool Re retro tower, we’re told the attachment point is higher for this third Baltic PCC cat bond deal.

The Baltic PCC 2025-1 cat bond notes will attach their coverage at £700 million of losses to Pool Re and cover a share of a layer up to exhaustion at £1 billion, we are told.

As a result, the single currently UK £100 million tranche of Series 2025-1 notes that Baltic PCC Limited is looking to issue will have an initial attachment probability of 2.75%, an initial expected loss of 2.54% and are being offered to cat bond investors with price guidance in a range from 5.5% to 6%, our sources said.

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% spread (a 2.18 multiple of EL at market).

While, the Baltic PCC 2022 terror cat bond came with an initial expected loss of 2.38% and priced to pay investors a spread of 5.5%, so a multiple-at-market of 2.3 times EL.

This 2025-1 issuance would have a multiple of 2.26 times expected loss, should they price at the mid-point of initial guidance, so pricing seems roughly aligned.

Update 1:

We’re told this issuance remains at UK £100 million in size, but the spread has been adjusted to updated price guidance that is fixed at 5.9%, so towards the upper-end of the initially marketed range and indicating a multiple-at-market of 2.32 times the EL.

Update 2:

We understand that Pool Re successfully secured the targeted UK £100 million of terrorism retrocessional reinsurance from its third cat bond, this Baltic PCC 2025-1 deal.

The notes were priced to pay investors a spread of 5.9%, so towards the top-end of guidance and for a multiple of 2.32 times the expected loss.