Blue Halo Re Ltd. (Series 2022-1)

This is the fourth Blue Halo Re catastrophe bond for Allianz Risk Transfer.

Allianz ART is back looking for catastrophe bond investor support for its retrocessional reinsurance needs on an industry loss and aggregate basis. Once again, we assume the coverage is also set to protect some of the fronted risks that the carrier assumes from insurance-linked securities (ILS) funds, such as Nephila Capital.

In previous Blue Halo Re cat bond transactions, Allianz Risk Transfer acted as the ceding reinsurer through its Bermuda operation, but we understood from sources that the risk transfer was supportive of the re/insurers work with the largest ILS fund manager Nephila Capital.

Blue Halo Re Ltd. will seek to issue two tranches of Series 2022-1 notes, with a $100 million or greater target as of this issuances launch to investors, our sources said.

Both tranches of notes will be sold to ILS investors and the resulting capital be used to collateralise two retrocessional reinsurance agreements between the issuer and Allianz Risk Transfer (Bermuda), the ceding reinsurer.

Both tranches of notes will be exposed to U.S. named storm and earthquake events, across all hurricane and quake exposed states and territories including Puerto Rico, over a three-year term and on an annual aggregate and industry loss index trigger basis.

Previously, the Blue Halo Re cat bonds have mixed aggregate and occurrence cover, in separate tranches. But this year, the aggregate focus is likely due to the higher costs in the traditional retro reinsurance marketplace.

A $50 million Series 2022-1 Class A tranche of notes feature a franchise deductible per-event and have an initial expected loss of 4.91% at the base case. This tranche of notes are being offered to cat bond investors with price guidance in a range from 10% to 11%, we’re told.

The $50 million Series 2022-1 Class B tranche of notes are a little riskier and also feature a franchise deductible per-event, with an initial expected loss of 7.02% at the base case. This tranche of notes are being offered to cat bond investors with price guidance in a range from 15.5% to 16.5%, we understand.

For US hurricane risk, Florida is the state that contributes the greatest percentage of expected losses, as you’d imagine, while California holds the most earthquake risk for these cat bond notes.

The multiples on offer are aligned with a 2016 catastrophe bond issuance from Blue Halo Re, which also covered both US wind and quake risks.

Update 1:

The target size for this new Blue Halo Re 2022-1 catastrophe bond has increased by 25%, with $125 million of coverage now being sought by Allianz ART.

At the same time, investor appetites have helped the pricing tighten for both tranches of notes being issued.

The Class A tranche of notes is now targeted as a $60 million issuance and its price guidance has fallen and narrowed to 9.75% to 10%.

The Class B tranche of notes is now targeted as a $65 million issuance, while its price guidance has also tightened to 15.25% to 15.5%.

Update 2:

The Class A tranche of notes was upsized to the $60 million, while the notes priced below initial guidance at 9.75%.

The Class B tranche of notes was also upsized to the $65 million raised target, while pricing for this tranche settled at 15.25%, so again below the initial guidance.