Hypatia Ltd. (Series 2020-1)

This is the first catastrophe bond to be sponsored by Convex Group, the specialty insurance and reinsurance company founded by Stephen Catlin.

With its first cat bond transaction, Convex is seeking multi-year retrocessional reinsurance protection against losses from named storms and earthquakes.

We understand from sources that the industry loss triggered Hypatia cat bond deal is being transacted in swap form rather than reinsurance, while the special purpose issuer in Bermuda was originally going to be named Hypatia Re Ltd., but will be changed to Hypatia Ltd.

We’re told that Hypatia Ltd. will look to issue two tranches of Series 2020-1 cat bond notes, both of which will be exposed to losses from U.S. named storms, including Puerto Rico, D.C and the US Virgin Islands, as well as both U.S. and Canadian earthquake risks.

Coverage will be on an annual aggregate basis, using a weighted PCS industry loss index trigger, and across an almost three year term.

The cedent will be Convex Re, the Convex group reinsurance entity, but the coverage is also across entities such as Convex’s UK insurer as well, we understand.

A currently $100 million Class A tranche of notes to be issued by Hypatia Ltd. will provide Convex with aggregate industry loss based retro reinsurance attaching at $120 million of losses, after a $30 million franchise deductible, with this tranche of notes having an initial expected loss of 1.71% and being marketed to investors with coupon guidance of 7.25% to 7.75%, we’re told.

A $50 million Class B tranche will provide identical coverage, but attaching lower down at $80 million, again after a $30 million franchise deductible, giving the notes an initial expected loss of 3.06% and coupon price guidance of 10% to 10.5%.

Update 1:

Overall, the target for Convex’s first cat bond has now doubled to $300 million of coverage, while the pricing has been reduced to below the initial guidance range, which will be particularly encouraging for Convex in its first visit to the cat bond market.

The Class A tranche of notes to be issued by Hypatia Ltd., which launched at $100 million in size and will provide Convex with aggregate industry loss based retro reinsurance attaching at $120 million of losses, after a $30 million franchise deductible, now targets a 50% increase to $150 million, we’re told.

At the same time, the Class A tranche of notes with an initial expected loss of 1.71%, have seen their price guidance drop from initial guidance of 7.25% to 7.75%, to now be offered with a coupon in a range from 6.75% to 7.25%.

Meanwhile, the Class B tranche which will provide identical coverage, but attaching lower down at $80 million, again after a $30 million franchise deductible, had launched at just $50 million in size but are now expected to triple to $150 million as well.

The Class B notes will have an initial expected loss of 3.06% and were initially offered with coupon price guidance of 10% to 10.5%. That guidance has now fallen as well, to 9.75% to 10%.

Update 2:

Convex successfully secured the upsized $300 million of protection from its first ever catastrophe bond transaction, with the two $150 million tranches of notes issued by Hypatia Ltd. also pricing below initial guidance.

The less risky Class A tranche of notes priced at the low-end of reduced guidance, at a 6.75% initial coupon spread.

The riskier Class B notes did the same, with pricing finalised at the low-end again, at a 9.75% initial spread.