Galileo Re Ltd. (Series 2023-1)

AXA XL has returned to the catastrophe bond market to sponsor its first international multi-peril cat bond transaction since late 2019, with an issuance that will provide it a per-occurrence based capital markets sources of fully collateralized retrocessional reinsurance protection.

Previously, AXA XL’s catastrophe bonds had provided annual aggregate retrocessional reinsurance across multiple perils, but now the company is focusing on occurrence coverage just for the peak perils of hurricanes and earthquakes.

Using its Bermuda based special purpose insurer, Galileo Re Ltd., with this new catastrophe bond, we understand that AXA XL is seeking a source of collateralized retro reinsurance against losses from hurricanes and earthquakes, in the US and Canada.

Galileo Re Ltd. will look to issue two tranches of Series 2023-1 notes, that will be sold to investors and the proceeds used to collateralize reinsurance agreements between the issuer and the ceding company, which is XL Bermuda Ltd.

The cat bond will also cover AXA XL’s other underwriting entities, such as the Lloyd’s syndicate and other reinsurance writing entities of the company, sources said.

AXA XL is seeking $250 million or more in coverage from the two tranches of notes that are issued.

This coverage will be for losses from U.S., DC, Puerto Rico, and Virgin Islands named storm, as well as U.S. and Canada earthquakes, all on a per-occurrence and weighted industry loss index trigger basis.

The coverage will run for up to four years, with the Class A notes covering losses from 2024 to the end of 2027, but the Class B notes just covering a two year term to the end of 2025, we’re told.

Both tranches have an industry loss index attachment point at $1.7 billion and exhaustion at $2.2 billion, so the only difference between them appears to be the length of the term of coverage.

Which suggests AXA XL feels there could be some pricing divergence between the two, as their marketing proceeds and the company may look to maximise its opportunity on whichever tranche offers the most attractive pricing.

The tranches are unsized, with $250 million sought across the two, it seems.

The Class A and Class B notes have initial attachment probabilities of 2.6%, initial expected losses of 2.1% and are both being offered with spread price guidance in a range from 6.5% to 7.25%.

With the only difference being that the Class A’s would provide four years of cover and the Class B’s two, it’s going to be a fascinating deal to see price in the coming weeks.

Update 1:

We’re now told AXA XL is seeking up to $400 million in protection sought from this new Galileo Re 2023-1 cat bond deal.

We understand that the Class A tranche is being targeted as $200 million in size, while the Class B tranche is targeted at between $125 million and $200 million, and the spread price guidance has now been fixed at 7% for each set of notes.

Update 2:

We’re told the Class A notes priced to provide $200 million of four-year protection, while the Class B notes priced to provide $175 million.

The spread for each tranche of notes remained at the 7% level.