Hexagon II Reinsurance DAC (Series 2019-1)

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Hexagon II Reinsurance DAC (Series 2019-1) – At a glance:

  • Issuer: Hexagon II Reinsurance DAC
  • Cedent / sponsor: Covéa Group
  • Placement / structuring agent/s: Willis Re Securities is lead structuring agent & joint bookrunner. Natixis is co-structuring agent & joint bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: France windstorms & natural perils
  • Size: €120m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Nov 2019

Hexagon II Reinsurance DAC (Series 2019-1) – Full details:

This is the second catastrophe bond from mutual insurance society the Covéa Group, as the company looks to expand its capital markets backed natural catastrophe reinsurance coverage to include all-natural perils.

Hexagon II Reinsurance DAC has been registered in Ireland for the purpose of issuing a single Series 2019-1 tranche of catastrophe bond notes, which will be sold to institutional investors and ILS funds to provide the collateral to back a reinsurance agreement to protect Covéa Group entities.

This Hexagon II Reinsurance catastrophe bond will protect a range of Covéa Group insurer entities and subsidiaries against losses from windstorms and any other natural perils across a four-year term, with the covered entities including three named insurers MMA IARD SA, MAAF Assurances SA and GMF Assurances as well as other entities within the Group.

The covered area includes mainland France, Monaco and Andorra.

The covered area for the transaction includes mainland France, Monaco and Andorra, but not the overseas territories of France.

The reinsurance protection this cat bond provides will be on an ultimate net loss and per-occurrence basis.

The addition of what are termed “other events” is effectively almost an all-natural perils cover, as it includes a wide range of potential weather related exposures that may be caused by snowfall, earthquake, frost, ice, flooding, volcanic risks, mudslides and avalanches.

All-natural (or weather related) peril coverage is something that the ILS market provides through collateralised reinsurance, so by bringing this to cat bonds it makes the coverage they provide increasingly useful to cedants and comparable to their traditional reinsurance cover.

As long as investors are compensated for the risks, including for any unmodelled perils involved (of which there will definitely be some), transactions like this should find ample support in the ILS investor community.

We understand from sources that the transaction is being market as a €100 million deal, but that the notes would attach at €200 million of losses to Covea and cover losses up to €500 million. Given that’s a €300 million layer of the insurers reinsurance program, there is plenty of room for the transaction to be upsized if investors demand is there to support it.

We’re told that this equates to a 5.9% attachment probability and a 3.65% expected loss.

The Hexagon II Reinsurance notes are being offered to investors with price guidance in a range from 5.15% to 5.65%, suggesting a multiple at market of around 1.5% at the mid-point of this range.

We understand the transaction will likely settle at the beginning of November, giving plenty of time for investor meetings and marketing to be undertaken.

Update 1:

We understand that this Hexagon II Re 2019-1 catastrophe bond is likely to upsize slightly to between €110 million and €130 million, while at the same time the pricing guidance has been reduced to the lowest end of the range at 5.15%.

Update 2:

In the end the Hexagon II Re 2019-1 catastrophe bond did upsize but only to €120 million, a 20% increase on the launch size of the deal.

The €120 million of notes saw their pricing settle at the lowest-end of guidance, at 5.15%, which is an almost 5% reduction in pricing from the mid-point of initial guidance. This coupon represents a multiple at market of around 1.41 times the base case expected loss of 3.65%.

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