Hexagon IV Re Ltd. (Series 2023-1)

Covéa Group, the French mutual insurance society, has returned to the catastrophe bond market for its fourth Hexagon cat bond issuance.

This time, the insurer is seeking at least €100 million of collateralised reinsurance from the capital markets to cover windstorm losses in France, Monaco and Andorra.

Hexagon IV Re Ltd., which has been established in Bermuda and will be registered as a special purpose insurer (SPI), is set to issue two tranches of Series 2023-1 cat bond notes that will be sold to insurance-linked securities (ILS) investors and the proceeds used to collateralize a reinsurance agreement between the issuer and Covéa Group named insurers MMA IARD SA, MMA Assurance SA, and GAF Assurance.

The at least €100 million of reinsurance being targeted with the Hexagon Re IV 2023-1 cat bond provides will cover Covéa and its mutual insurers against losses from windstorms affecting France, Monaco and Andorra.

The reinsurance protection will cover Covéa and its insurers across four calendar years from January 1st 2024 to the end of 2027, we understand.

The cat bond notes will feature an indemnity trigger and provide reinsurance cover on a per-occurrence basis.

Each of the covered insurers has a deductible in place, before third-party reinsurance sources kick-in, and the two tranches of Hexagon Re IV 2023-1 cat bond notes will sit in layer two and three of Covéa’s reinsurance tower, we understand from sources.

A targeted €100 million Class A tranche of notes would attach at €125 million of losses, above the deductibles, covering a share of losses to €375 million, giving them an initial attachment probability of 6.44%, an initial expected loss of 4.35% and these notes are being offered with price guidance for a spread of between 8% and 8.75%, we’re told.

A Class B tranche of notes are unsized and sit beneath the A’s, attaching at €25 million of losses, above the deductibles, covering a share of losses to €125 million, giving them an initial attachment probability of 10.64%, an initial expected loss of 8.08% and these notes are being offered with price guidance for a spread of between 14.75% and 15.75%.

The riskier B tranche of notes will sit alongside the 2021 Hexagon III cat bond B’s, which at issuance had an expected loss of 8.05% and priced with a spread of 11%.

Update 1:

Covéa Group is seeking to upsize its latest catastrophe bond to provide €145 million in reinsurance across the two tranches on offer, while at the same time the pricing has risen.

We understand investors pushed back on what was seen as too low and aggressive pricing for the riskier tranche of this Hexagon IV Re cat bond deal. This also resulted in the issuance timeline extending and the targeted settlement date slipping by more than one week.

The Class A tranche of notes have increased in size from their initial €100 million to now €120 million, while at the same time their price guidance has been fixed at 8.5%, so in the upper-half of the initially marketed range.

The riskier Class B notes have now been sized at €25 million, while their price guidance has been fixed at 16.5%, so well above the initial range.

Update 2:

Covéa Group secured its new Hexagon IV Re catastrophe bond with the targeted upsize to provide €145 million in multi-year catastrophe reinsurance.

At the same time the pricing remained fixed at the levels adjusted to.

So the Class A notes settled at €120 million in size, with a spread payable of 8.5%, while the Class B notes were finalised at €25 million, with a spread of 16.5%.