Galileo Re Ltd. (Series 2019-1)

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Galileo Re Ltd. (Series 2019-1) – At a glance:

  • Issuer: Galileo Re Ltd.
  • Cedent / sponsor: XL Bermuda Ltd.
  • Placement / structuring agent/s: GC Securities is sole structuring agent and joint bookrunner. Aon Securities is joint bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S., Puerto Rico, Virgin Islands named storm, U.S. earthquake, Canada earthquake, U.S. severe thunderstorm, European windstorm, Australian tropical cyclone, Australian earthquake
  • Size: $400m+
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: Dec 2019

Galileo Re Ltd. (Series 2019-1) – Full details:

AXA XL has returned to the catastrophe bond market for its first international multi-peril transaction since late 2017, seeking to expand and replace certain of its capital markets sources of fully collateralized retrocessional reinsurance protection.

Our sources tell us that the sponsor is XL Bermuda Ltd., with the retrocessional reinsurance protection covering the AXA XL reinsurance related businesses across the Bermuda, London, Lloyd’s and international marketplaces.

Special purpose insurer Galileo Re Ltd. is said to be looking to issue five tranches of Series 2019-1 notes, only two of which currently have target sizes attached and these two alone amount to $400 million already.

However, the tranches will between them provide coverage across layers amounting to a huge $1.6 billion of limit, sources said, hence this Galileo Re 2019-1 cat bond looks to have the potential to grow significantly bigger if the market demand from cat bond funds and investors is there.

All of the tranches will provide AXA XL subsidiaries with a source of fully collateralised retro reinsurance on an annual aggregate and weighted industry loss trigger basis across a four-year term.

The covered perils are U.S., Puerto Rico and Virgin Islands named storm, U.S. earthquake, Canada earthquake, U.S. severe thunderstorm, European windstorm, Australian tropical cyclone, and Australian earthquake risks. Industry loss data providers PCS and PERILS will provide the reporting roles for the cat bond.

Given the potential scale of the transaction and the fact it’s structured across five layers, this Galileo Re 2019-2 cat bond transaction will offer a range of risk and return investment opportunities for cat bond investors.

An unsized Class A tranche of notes will provide protection across a $300 million layer attaching at $1.2 billion, giving a base initial expected loss of 7.74% and with the notes offered with price guidance in a range from 15.25% to 15.75%, we’re told.

An also unsized Class B tranche will cover a $300 million layer attaching at $1.5 billion, so having an initial expected loss of 4.98% and with the notes offered with price guidance in a range from 11.5% to 12%.

A Class C tranche is sized at $250 million, but covers a $300 million layer attaching at $1.8 billion, with an initial expected loss of 3.52% and with the notes offered with price guidance in a range from 9% to 9.5%.

A Class D tranche also has a size at $150 million, also covering a $300 million layer attaching at $2.1 billion, with an initial expected loss of 2.54% and offering price guidance in a range from 7.25% to 7.75%.

The final Class E tranche is unsized, but covers a larger $500 million layer, attaching at $2.4 billion, with an initial expected loss of 1.69% and offering price guidance in a range from 5.75% to 6.25%.

We understand that in order to qualify under the aggregate terms of the transaction events must exceed a $40 million franchise deductible in each case.

So in total, this cat bond’s protection will span layers from $1.2 billion up to a final exhaustion at $2.9 billion, which should the sponsor elect to upsize the deal significantly in response to investor demand means as much as a $1.7 billion layer limit could be available.

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