Bonanza Re Ltd. (Series 2024-1)

This will be the eighth catastrophe bond in the Bonanza Re Ltd. series of deals and this time it sees US insurer Progressive returning for broad multi-peril reinsurance protection from the capital markets, on both a per-occurrence and aggregate basis.

Bermuda domiciled special purpose insurer Bonanza Re Ltd. will issue the three tranches of Series 2024-1 cat bond notes, with the proceeds from their sale used to collateralize multi-year reinsurance arrangements for the Progressive insurance companies, sources explained.

Across the three tranches, Progressive is looking to secure $225 million or more in indemnity triggered, multi-peril and multi-year US focused reinsurance from the capital markets.

The Bonanza Re 2024-1 cat bond will provide the insurer with one year of aggregate reinsurance and three years of occurrence coverage, across the perils of named storm, earthquake (fire-following only), severe thunderstorm, winter storm, wildfire in the United States.

A $50 million tranche of zero-coupon discount Class A notes are designed to provide aggregate coverage across just a single year through 2025, and have two sections with a shared limit, one focused on multi-peril cover and the other named storm only, we are told.

The aggregate multi-peril cover of the Class A notes would attach at $525 million in losses and exhaust at $625 million with an event deductible of $20 million and maximum contribution of $180 million, while the named storm only section would attach at $425 million and exhaust at $525 million with an event deductible of $25 million and maximum event contribution of $175 million, we understand.

The $50 million Class A notes come with an initial attachment probability of 6.03%, an initial expected loss of 4.09% and are being offered to cat bond investors with price guidance of 79% to 77% of par, which is a rough spread equivalent of 21% to 23%, it appears.

The other two tranches are simpler in structure, providing three calendar years of indemnity and per-occurrence multi-peril reinsurance protection to the end of 2027 for Progressive.

A $75 million tranche of Class B notes have an attachment point of $1.05 billion of losses and exhaust coverage at $1.38 billion, giving them an initial attachment probability of 0.93%, an initial expected loss of 0.76% and they come with spread price guidance of between 4.5% and 5.25%.

The final $100 million tranche of Class C notes would also attach at $1.05 billion of losses but then exhaust coverage at a lower $1.25 billion, giving them an initial attachment probability of 2.09%, an initial expected loss of 1.82% and they come with spread price guidance of between 6.5% and 7.25%.

We’re told inuring reinsurance makes the difference and that the effective attachment for the B notes is much higher, at around $1.72 billion of losses, which explains the lower attachment probability and EL metrics for this layer.

Update 1:

Progressive’s target for this latest cat bond has increased by 53%, with now $345 million of cover sought.

What was a $50 million tranche of zero-coupon discount Class A notes are now offered at $70 million in size, we are told. They are designed to provide aggregate coverage across just a single year through 2025, and have two sections with a shared limit, one focused on multi-peril cover and the other named storm only.

The now $70 million Class A tranche of notes come with an initial expected loss of 4.09% and were first offered to cat bond investors with price guidance of 79% to 77% of par, which is a rough spread equivalent of 21% to 23%, but we’re told that has reduced to a range of 80% to 79% of par, an effective coupon equivalent of 20% to 21%.

The other two tranches will provide Progressive with three calendar years of indemnity and per-occurrence multi-peril reinsurance protection to the end of 2027.

The Class B tranche of notes remain $75 million in size, with an initial expected loss of 0.76% and they were at first offered with price guidance of between 4.5% and 5.25%, but that has lowered to a new range of 4% to 4.45%, sources said.

What was a $100 million tranche of Class C notes are now targeted at double that, for $200 million of protection, having an initial expected loss of 1.82%, they were first offered with spread price guidance of between 6.5% and 7.25%, but that has now also fallen to a new range of between 6% and 6.5%.

Update 2:

At the second update the size target for this cat bond remains $345 million for Progressive, but the pricing fell across all three tranches.

The $70 million Class A tranche of notes saw their price fixed at 80% of par, so the low-end of reduced guidance and an effective spread rate of 20%.

The $75 million Class B tranche saw their price guidance lowered to 3.75% to 4%.

The $200 million Class C tranche saw their pricing guidance reduced to 5.5% to 6%.

Update 3:

This Bonanza Re 2024-1 cat bond eventually priced to provide Progressive the upsized target of $345 million of reinsurance protection.

The Class A aggregate notes stayed at $70 million, with their price fixed at 80% of par (a 20% rough spread equivalent).

The Class B tranche remained $75 million and priced at the low-end of 3.75%.

The Class C tranche remained $200 million  and priced at the low-end of 5.5%.