Logistics Re Ltd. (Series 2021-1) – Full details:
Logistics and warehousing focused real estate owner and investor Prologis, Inc. has turned to the catastrophe bond market to source earthquake insurance protection.
Prologis operates as a real estate investment trust, owning and investing in commercial real estate, largely linked to the warehousing, logistics and supply-chain sectors and with a United States focus.
Prologis also has a risk concentration in California, we understand, with roughly a quarter of the insured limit that will be covered by this Logistics Re catastrophe bond coming from that state and given the elevated earthquake risk in California, the state contributes 95% of the initial expected loss to this cat bond.
The company has had a special purpose insurer (SPI) named Logistics Re Ltd. registered in Bermuda for the purposes of issuing catastrophe bond programs and notes.
The protection from this first cat bond will be cascaded down from the Logistics Re Ltd. SPI, via global reinsurance firm Hannover Re, through Prologis’ captive insurer Solution Insurance Ltd. and on to Prologis itself.
That’s a typical cascading approach that is often used to enable a corporate sponsor to more directly and easily access the capital markets for insurance protection.
Logistics Re Ltd. will seek to issue a single $95 million Class A tranche of Series 2021-1 catastrophe bond notes.
Those notes will be sold to cat bond investors and the proceeds used to collateralize retrocessional reinsurance agreements between the SPI and Hannover Re.
Hannover Re will then provide reinsurance to the captive insurer, Solution Insurance Ltd. which will in turn insure Prologis, Inc.
The $95 million of Class A notes will provide Prologis with a three-year source of US earthquake insurance protection, covering the 50 states (with California the peak exposure) on an indemnity and per-occurrence basis, we’re told.
The Class A notes will attach at $350 million of losses to Prologis’ insurance tower and cover a percentage of losses up to $550 million, we understand.
That gives the notes an initial attachment probability of 1.559%, an initial expected loss of 1.094% and they are being offered to cat bond investors with coupon guidance in a range from 3% to 3.5%, sources said.
We’re told this issuance continues to be marketed as $95 million in size, but that the price guidance range has narrowed towards the upper-end, with the notes now offered at a 3.25% to 3.5% coupon.
The Logistics Re catastrophe bond was eventually priced at the top-end of initial guidance, at 3.5%, while the issuance remained $95 million in size.