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

This is Tokio Marine’s fifth Kizuna Re catastrophe bond issuance, as the Japanese insurance giant seeks additional collateralized reinsurance protection against Japanese earthquake loss events.

Kizuna Re III Pte. Ltd. has been established as a special purpose reinsurance vehicle in Singapore, for the purpose of this catastrophe bond issue, we understand from sources.

Kizuna Re III Pte. Ltd. will seek to issue a single Class A tranche of Series 2021-1 notes, that will be sold to investors and the proceeds used to collateralize underlying reinsurance agreements between the issuer and Tokio Marine & Nichido Fire Insurance.

The target size is at least $150 million and the reinsurance coverage will be against losses from Japanese earthquakes, including losses from related impacts caused by shake, tsunami, fire, flooding and sprinkler leakage.

Coverage will be on a three-year aggregate and indemnity basis, across a five year term.

We’re told there is a franchise deductible per-earthquake event that qualifies under the terms of the deal of JPY 25 billion, while the attachment point for the first of the three-year risk periods is JLY 52.5bn (roughly US $491m).

This is the same as Tokio Marine’s other recent Kizuna cat bonds, where the transactions have three, three-year aggregate risk periods, that overlap across the full five-year term of the coverage. As a result, maturity is slated for sometime in late March or early April 2026.

The $150 million of Class A Series 2021-1 cat bond notes that Kizuna Re III Pte. Ltd. will issue have an initial expected loss of 1% on a three-year basis, we understand, which is 0.33% annualised.

The notes are being offered to catastrophe bond investors with pricing guidance of 2.25% to 2.5%.

Sources said that this new Kizuna Re III 2021 catastrophe bond covers a portfolio of Tokio Marine & Nichido Fire’s business including commercial, personal and industrial property policies, personal accident, automobile losses, and certain reinsurance assumption between the cedant and group companies.

As with the sponsors last Kizuna Re II Ltd. (Series 2018-1) catastrophe bond, the new cat bond can be matured early after three years, if the notes haven’t responded to losses in the first of the risk periods, providing considerable flexibility to the sponsor in planning its reinsurance arrangements after the first three-year term.

Update 1:

The price guidance has been lowered for Tokio Marine & Nichido Fire Insurance Co’s fifth Kizuna Re catastrophe bond, making the $150 million Kizuna Re III Pte. Ltd. (Series 2021-1) transaction the latest to see its pricing fall during marketing.

The price guidance was reduced to below the bottom of initial guidance, and narrowed to 2% to 2.25%.

Update 2:

The pricing was eventually fixed at the low-end of reduced guidance, at 2%. This represents a roughly 16% decline in spread from the initial guidance mid-point.