Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Horse Capital I DAC

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Horse Capital I DAC – At a glance:

  • Issuer: Horse Capital I DAC
  • Cedent / sponsor: Assicurazioni Generali S.p.A.
  • Placement / structuring agent/s: Willis Capital Markets & Advisory is sole structuring agent and joint bookrunner. Barclays is joint bookrunner.
  • Risk modelling / calculation agents etc: Milliman
  • Risks / perils covered: Motor third-party liability losses
  • Size: €255m ($266m)
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Dec 2016

Horse Capital I DAC – Full details:

According to sources, Generali is looking to secure a capital market backed source of fully collateralised reinsurance protection against a significant deterioration in the motor third-party liability loss ratio’s of an aggregated group of its insurer subsidiaries around Europe.

The reinsurance coverage from the Horse Capital I ILS transaction will be provided across a portfolio of Generali owned insurers from Austria, Czech Republic, France, Germany, Italy, Spain and Switzerland, whose motor third-party liability loss ratios will be covered by the deal.

The transaction features an indemnity trigger and losses will be calculated on an annual aggregate basis across the covered insurers, we understand. The covered insurers loss ratios will be monitored and reported across three years from 2017, with Milliman acting as risk modelling agent.

Three classes of notes are being issued by Horse Capital I DAC, an Irish domiciled designated activity company set up for this ILS transaction. We’re told that the underlying transaction, providing the reinsurance between Generali and Horse Capital I, is a derivative structure.

A €60m Class A tranche of notes have an attachment probability of 1.63%, an expected loss of 1.32% and would cover the aggregate loss ratio from 95% to 97.25%, we’re told. This tranche is being marketed to investors with price guidance of 3.5% to 4.5%.

A €60m Class B tranche has an attachment probability of 4.11%, an expected loss of 2.9% and cover the loss ratio from 92.75% to 95%. These notes being riskier offer investors a coupon in a guidance range from 6% to 7%.

Finally, a €60m Class C tranche has an attachment probability of 8.04%, an expected loss of 5.9% and cover the reported aggregated loss ratio from 90.5% to 92.75%. This tranche of notes are being marketed with price guidance of 10.5% to 12%.

All three tranches have a drop-down feature we understand, making the coverage more flexible for the sponsoring insurer.

Update 1:

According to sources Generali’s casualty ILS deal has been well-received by the ILS community, with the transaction now expected to increase in size from the original target of €180m to somewhere between €210m to €240m (US$255m).

At the same time the price guidance has been fixed, with coupon pricing looking likely to settle around mid to upper of the initial ranges.

The Class A tranche of notes, which are the least risky, were initially marketed to investors with price guidance of 3.5% to 4.5%. This has now been fixed at the mid-point of guidance at 4%.

The Class B tranche, which are the middle risk layer of the transaction, were offered with price guidance in a range from 6% to 7%. This tranche has had its pricing guidance fixed at 6.25%, so just below the mid-point from where it launched.

Finally, the most risky Class C tranche, which were marketed with price guidance of 10.5% to 12%, have had their pricing fixed at the upper end at 12%.

Update 2:

The Horse Capital I transaction upsized at pricing, reaching €255 million, so beating the revised earlier target and resulting in an overall growth in deal size of 42% during its lifetime.

All three tranches settled at €85m in size. he least risky Class A notes pricing has settled at the mid-point of guidance at 4%. The middle risk Class B layer of the transaction has seen pricing settled at just at 6.25%, below the mid-point from where it launched. Finally, the most risky Class C tranche saw pricing settle at the upper end of the initial range at 12%.

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