Claveau Re Ltd. (Series 2021-1)

Arch Capital Group is seeking its first ever retrocessional reinsurance catastrophe bond for its Arch Reinsurance unit and related entities, with this Claveau Re Ltd. (Series 2021-1) cat bond set to secure the company at least $100 million of global peak peril retro protection.

Claveau Re Ltd. is a newly formed Bermuda based special purpose insurer (SPI), that will issue a single tranche of notes which will be sold to investors and the proceeds used to collateralize a retrocessional reinsurance agreement between the SPI and the ceding company.

In this case, we’re told that the ceding reinsurer is Arch Reinsurance Ltd., the global reinsurance entity of Arch Capital, as well as Arch Reinsurance’s Irish based DAC underwriting unit and its Lloyd’s managing agency on behalf of Syndicate 1955.

With this first Claveau Re cat bond, Arch is seeking a multi-year source of retrocessional reinsurance protection against losses from global peak peril events, on an industry loss trigger and annual aggregate basis, we understand.

The at least $100 million of notes to be issued will provide cover against losses from a wide range of perils, making this almost an all natural perils deal.

They include: US & Canada named storm and earthquake; US severe thunderstorm; US wildfire; US winter storm; US Caribbean quake; Japan typhoon and earthquake; Canada severe thunderstorm; Canada winter storm; European windstorm; Italy earthquake; Turkey earthquake; Australia earthquake; Australia tropical cyclone; New Zealand quake.

It’s a particularly wide range of perils and another transaction that will demonstrate the use of the catastrophe bond to access the capital markets, in an industry loss trigger form, as a way to secure global retrocessional protection against peak catastrophic perils.

Each of these perils has a deductible attached, meaning loss events have to cause an industry impact of a certain magnitude beifre they would qualify and begin eroding the cat bond principal.

The transaction is slated to provide four years of retro protection, running to the end of June 2025, we’re told. We also understand that there is a cap for coverage contribution from a US named storm.

Sources said the notes would attach once aggregate industry losses after the franchise deductibles reached $55 billion and exhaust at $77.5 billion.

The single, currently $100 million, tranche of Class A notes being issued by Claveau Re Ltd. will have an initial modeled expected loss of 7.18% and are being offered to cat bond investors with coupon price guidance in a range from 17% to 17.75% we’re told.

As we understand it, a single-shot US all natural perils industry loss warranty (ILW) with a trigger of $50 billion would be expected to price somewhere around the 18.5% to 20% range right now, which suggest this multi-peril, global and aggregate cover could actually be quite efficient in terms of pricing in the cat bond market.

Update 1:

Sources told us that Arch may look to upsize this Claveau Re catastrophe bond by as much as half, with the target now being between $125 million and $150 million of protection from this deal.

At the same time, the marketed price guidance range has been tightened towards the lower-end, at 17% to 17.25%.

Update 2:

Arch Capital secured the upper-target of $150 million of retro reinsurance from this its first 144A property catastrophe bond.

The notes priced to pay investors a coupon of 17.25%, so just below the initial guidance mid-point.

Update – Feb 2024:

The outstanding principal for this Claveau Re 2021-1 catastrophe bond has been reduced to roughly $124.6m, suggesting a $25.6m recovery has been made. We understand Arch’s qualifying aggregate catastrophe losses have breached the attachment, with the latest update to the Feb 2023 Turkey earthquake the latest driver of this. The remaining principal is marked at around 70 cents on the dollar on broker’s secondary cat bond market price sheets.