Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Fortius Re II Ltd. (Series 2017-1)

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Fortius Re II Ltd. (Series 2017-1) – At a glance:

  • Issuer: Fortius Re II Ltd. (Series 2017-1)
  • Cedent / sponsor: AmTrust Financial Services
  • Placement / structuring agent/s: Willis Towers Watson Securities is sole structuring agent and bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. named storms, U.S. earthquake, Canada earthquake
  • Size: $100m
  • Trigger type: Indemnity & modelled loss
  • Ratings: NR
  • Date of issue: Jul 2017

Fortius Re II Ltd. (Series 2017-1) – Full details:

Fortius Re II Ltd. will look to issue a single tranche of notes to ILS investors, with the Class 1 tranche currently targeting $100 million of reinsurance for the sponsor and its subsidiaries.

The Fortius Re II 2017-1 cat bond will provide AmTrust insurance subsidiaries with a source of U.S. named storm, U.S. earthquake and Canada earthquake reinsurance protection across a four-year term.

Interestingly, we’re told the transaction features two sections with shared limit across each of them.

The first, Section A, can be triggered by indemnity losses from all covered perils on a per-occurrence basis and provide property reinsurance protection.

The second Section B limit though, is exposed to modelled losses to a workers compensation portfolio due to earthquake impacts across the U.S. and Canada only also on a per-occurrence basis, so no named storm coverage here.

Effectively the multi-section, shared limit approach provides AmTrust with a way to gain two types of reinsurance coverage with different triggers, from one transaction, a clever way to structure a cat bond deal. With both sections providing per-occurrence based reinsurance protection it means only one can ever pay out, so investors are not exposed to both loss categories at the same time.

Of course this does make the work of analysing and modelling such a catastrophe bond harder for investors and may even limit the number of ILS funds and investors that would be capable of understanding the risks enough to participate, but given the sophistication of the ILS market now there are plenty of fund managers and investors that can.

We’re told that the $100 million tranche of notes to be issued by Fortius Re II will have an initial attachment probability of 1.83% and an expected loss of 1.11%. The majority of that is derived from the Section A indemnity risk, with 0.84% of the expected loss, while the modelled loss section contributes just 0.18% of the expected loss, we are told.

The Fortius Re II notes are being offered to ILS investors with coupon price guidance in a range from 4% to 4.5%, which is generous given the expected loss and likely compensates investors for supporting what is a more unusual cat bond coverage structure.

Update 1:

We’re told that while the size target remains $100 million, the pricing guidance has dropped to below the initial range and AmTrust is now targeting a coupon of between 3.75% and 4% at close.

Update 2:

The pricing finally settled at the bottom end of the already reduced guidance, to offer investors in the notes a coupon of 3.75%.

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