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Hexagon III Re Pte. Ltd. (Series 2021-1)

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Hexagon III Re Pte. Ltd. (Series 2021-1) – At a glance:

  • Issuer: Hexagon III Re Pte. Ltd.
  • Cedent / sponsor: Covéa Group
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: France windstorm, hail storm & other natural perils
  • Size: €153m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Dec 2021

Hexagon III Re Pte. Ltd. (Series 2021-1) – Full details:

Covéa Group, the French mutual insurance society, has returned to the catastrophe bond market for the third time, with a new multi-peril arrangement that seeks at least €200 million of collateralised reinsurance to cover windstorm, hail storm and certain other events in France.

Covéa Group has opted to shift its domicile of issuance to Singapore for its third catastrophe bond, which will see the mutual insurer benefiting from the ILS grant program that will pay a portion of the upfront issuance costs.

Hexagon III Re Pte. Ltd. has been registered as a a special purpose reinsurance vehicle in Singapore and it will seek to issue two tranches of Series 2021-1 cat bond notes.

The two tranches of notes are slated to secure at least a €200 million four year capital markets-backed source of reinsurance for Covea, with one tranche focused solely on windstorm coverage in France, Monaco and Andorra and the other including hail and other natural peril events, such as snowfall, earthquake, frost, ice, flooding, volcanic risks, mudslides and avalanches.

Both tranches will provide Covea with indemnity reinsurance protection on a per-occurrence basis and will come on-risk from the start of 2022, with cover running through to the end of 2025, we understand.

Hannover Re sits in the middle of this transaction as ceding reinsurer, to assist Covea in interfacing with the capital markets.

The two tranches of Series 2021-1 notes issued by Hexagon III Re Pte. Ltd. will be sold to catastrophe bond investors and the proceeds used to collateralise retrocessional reinsurance agreements between the issuer and Hannover Re, which will in turn enter into reinsurance agreements with Covea companiess, which include three named insurers MMA IARD SA, MAAF Assurances SA and GMF Assurances as well as other entities within the Covéa Group.

A €100 million Class A tranche of notes will provide windstorm, hail storm and other natural peril event cover, attaching at €450 million of losses and covering a €400 million layer of Covea’s reinsurance tower, so has room to grow, we’re told.

The Class A notes will have an initial expected loss of 1.83% and are said to be being offered to investors with coupon guidance in a range from 2.5% to 3%.

A €100 million Class B tranche of notes only cover windstorm risks and attach lower down at €50 million, so are far riskier, and cover just a €100 million layer, so won’t upsize, we understand.

This Class B tranche of notes have an 8.05% initial expected loss and are being offered with price guidance of 9% to 9.5%, our sources said.

Update 1:

The pricing diverged between the two tranches offered and Covea looks likely to have to settle for a little less reinsurance than the targeted €200 million or more this issuance began with.

The Class A notes are now targeting between €100 million and €125 million of protection for Covea, but that the price guidance is now fixed at the lower-end of 2.5%.

But, the target size for the Class B tranche has fallen, with €50 million to €65 million now sought, and at the same time, the Class B notes are now being offered with a coupon of 11%, which is a relatively significant increase from the initial price guidance that was offered.

Update 2:

At final pricing this catastrophe bond downsized to just €153 million across the two tranches.

The Class A notes were fixed at €100 million in size and with pricing at the reduced 2.5% coupon.

The Class B notes in the end secured only €53 million of reinsurance for sponsor Covea, with the coupon fixed at the raised 11% level.

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