Commonwealth Re Ltd. (Series 2022-1)

This is US primary insurer The Hanover Insurance Group, Inc.’s first ever catastrophe bond.

The Hanover has registered a new Bermuda company named Commonwealth Re Ltd. that is expected to be licenced in time as a special purpose insurer (SPI), for use as a catastrophe bond issuance vehicle.

Commonwealth Re Ltd. is aiming to issue a $100 million or greater tranche of Series 2022-1 notes, that will be sold to investors and the proceeds used to collateralize a reinsurance agreement between the vehicle and The Hanover.

The reinsurance will protect numerous of The Hanover Insurance Group’s subsidiary insurance companies against certain losses from named storms (so tropical storms and hurricanes, as well as related perils) on a per-occurrence and indemnity trigger basis over a three year period.

The covered area are the US northeast states that typically feature in a named storm cat bond focused on that part of the country, we understand.

We’re told the notes reinsurance coverage would attach at $1.3 billion of losses to The Hanover and its subsidiaries, exhausting at $1.45 billion, meaning this first Commonwealth Re cat bond could upsize to as much as $150 million if pricing and terms are conducive.

The $100 million of Series 2022-1 Class A notes come with an initial expected loss of 0.54% at the base case, we understand, and are being offered to cat bond investors with price guidance in a range from 3.5% to 4%.

Update 1:

The Hanover looks set to upsize its debut catastrophe bond, with the Class A notes now sized as a $150 million issuance.

At the same time the price guidance has been tightened, to between 3.25% and 3.75%.

Update 2:

In the end, The Hanover secured the upsized $150 million of reinsurance from its first Commonwealth Re catastrophe bond.

The pricing was eventually finalised to pay investors a coupon of 3.5%, which is the bottom of the initial guidance range.