Bonanza Re Ltd. (Series 2023-1) – Full details:
This will be the sixth catastrophe bond in the Bonanza Re Ltd. series of deals that have in the main covered the risks of American Strategic Insurance Group, but in recent year’s that has broadened out to include some of the carriers of the Progressive-owned ARX Holding Corporation.
This latest catastrophe bond will actually be the seventh to provide reinsurance to insurer American Strategic.
Bonanza Re Ltd., the Bermuda domiciled special purpose insurer (SPI), is targeting issuance of two tranches of Series 2023-1 notes for this new cat bond issuance for the Progressive insurance companies (we understand known as Progressive Home).
The target size of the issuance is currently $125 million across the two tranches of notes, which will provide the ARX Holding insurers, including American Strategic, with a multi-year source of US property catastrophe reinsurance protection.
The Bonanza Re 2023-1 cat bond deal will provide the ceding insurers with US named storm reinsurance across three hurricane seasons, through a Class A tranche of notes that only come on-risk at June 1st 2023 and run to the end of 2025.
The Class A notes will provide ARX Holding with indemnity and per-occurrence protection for named storm losses over this term.
Meanwhile, we understand the Class B notes will provide multi-peril aggregate reinsurance protection over a single year, just running through 2023 and will cover ARX Holding’s insurers for losses from US named storm, earthquake, severe thunderstorm, winter storm, wildfire events.
This aggregate Class B tranche features a $5 million deductible per-event as well as a cap per-event contribution, we understand.
The Class A per-occurrence and indemnity triggered US named storm notes are marketed at $75 million in size and these notes would attach at $1.05 billion of losses to ARX Holding insurers but when inured to reinsurance the effective attachment point is more like $1.8 billion, we’re told.
That gives the Class A notes an initial attachment probability of 0.95%, an initial base expected loss of 0.87% and they are being marketed with price guidance in a range from 7.5% to 8.25%.
Interestingly, the Bonanza Re 2022-1 cat bond, which was US wind and per-occurrence only, had an initial expected loss of 2.03% and priced at a 5.75% coupon, so this new cat bond offers investors a significantly higher risk-adjusted return, it seems.
The Class B, annual aggregate, multi-peril and one-year notes, are marketed at $50 million in size and have an attachment at $600 million of losses, an initial attachment point of 1.87%, an initial base expected loss of 1% and are being offered as zero-coupon discount notes, with pricing of 81% to 80% of principal, which roughly means a 19% to 20% rate-on-line equivalent.
The target size has now been lifted from $125 million to as much as $130 million across the two tranches of notes.
The Class A notes will provide ARX Holding with indemnity and per-occurrence protection for named storm losses over this term and are now sized at between $65 million and $75 million, we understand.
With an initial base expected loss of 0.87%, the Class A notes were at first marketed with price guidance in a range from 7.5% to 8.25%, but we’re now told that guidance is fixed at the top-end of 8.25%.
The Class B notes now have a slightly raised target of $55 million in size, up from an initial $50 million, and will provide multi-peril aggregate reinsurance protection over a single year, just running through 2023, covering losses from US named storm, earthquake, severe thunderstorm, winter storm, wildfire events.
The zero-coupon Class B notes have an initial base expected loss of 1% and were first offered with pricing of 81% to 80% of principal, which roughly means a 19% to 20% rate-on-line equivalent, but we’re told this has now been fixed at the top-end at 80% of principal, so implying a 20% rate-on-line equivalent.
Both tranches therefore will come with far higher multiples-at-market than previous Bonanza Re cat bond deals, as investors continue to demand much higher spreads in 2023.
We understand that the size for this Bonanza Re 2023-1 cat bond issuance has increased again to $135 million, with $70 million of reinsurance secured from the Class A per-occurrence notes, and now $65 million secured from the Class B annual aggregate zero-coupon notes.