Swiss Re Insurance-Linked Fund Management

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Long Point Re III Ltd. (Series 2018-1)

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Long Point Re III Ltd. (Series 2018-1) – At a glance:

  • Issuer: Long Point Re III Ltd. (Series 2018-1)
  • Cedent / sponsor: Travelers
  • Placement / structuring agent/s: Swiss Re Capital Markets is sole structuring agent and with Aon Securities joint bookrunners. Goldman Sachs is co-manager
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. tropical cyclone, earthquake, severe thunderstorm, winter storm (Northeastern U.S. states only)
  • Size: $500m
  • Trigger type: Indemnity
  • Ratings: ?
  • Date of issue: May 2018

Long Point Re III Ltd. (Series 2018-1) – Full details:

This new 2018-1 Long Point Re III catastrophe bond deal will be the sixth cat bond issuance by Travelers and its first since 2015. This multi-peril cat bond will provide the insurer with collateralized reinsurance across the U.S. northeastern states over a four-year term and will replace and renew the firms Long Point Re III 2015 cat bond that matures in May 2018, the month of this new deals issue.

This 2018 cat bond is therefore a replacement and renewal of the 2015 deal, but will also extend the coverage as well, with this 2018 cat bond seeking a four-year source of fully-collateralized reinsurance protection, adding a year to the capital markets provides to Travelers and subsidiaries.

Travelers special purpose insurer Long Point Re III Ltd. will look to issue a single Series 2018-1 Class A tranche of notes, we understand, with the current target being for a $300 million issuance, which would fully replace the maturing 2015 cat bond coverage.

The $300 million of Long Point Re III 2018-1 Class A notes will be sold to investors to collateralize multi-peril reinsurance agreements between the SPI and Travelers subsidiaries that include the usual insurance companies, Travelers Indemnity, Travelers Casualty & Surety, St. Paul Fire and Marine and The Standard Fire Insurance Company, as well as any associated subsidiaries of each.

Travelers will benefit from a collateralized source of reinsurance protection against certain losses caused by U.S. tropical cyclone, earthquake, severe thunderstorm and winter storm perils, across a covered area that is the usual northeastern U.S. states, we’re told.

We understand the covered area to be the same as its previous Long Point Re III cat bond, so protecting Travelers against losses in Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Vermont.

The Long Point Re III 2018-1 Class A notes will provide their reinsurance protection on a per-occurrence basis across the four-year term, with any payouts decided using an indemnity trigger approach.

Sources said the targeted $300 million or greater of cat bond notes to be issued by Long Point Re III in this 2018 deal will have an initial attachment probability of 1.392%, an initial expected loss of 1.214% and are being marketed to investors with coupon guidance in a range from 3% to 3.5%.

Update 1:

We understand from sources that Travelers target has risen and this new Long Point Re III 2018 cat bond could complete at anywhere up to $500 million in size, as the insurer looks to increase the role of the capital markets in its reinsurance tower.

We’re also told that the price guidance has been slashed to below the initial range, with the up to $500 million of notes now offering investors a coupon from 2.75% to 3%.

Update 2:

The Long Point Re III 2018-1 cat bond successfully secured its raised target of $500 million for Travelers. At the same time the pricing fell to the bottom of the reduced range, at 2.75%, reflecting a multiple of 2.3 times the initial expected loss, roughly aligned with other recent cat bond transactions at this risk level, but significantly lower than Travelers last cat bond achieved in 2015 (around 3.3 times the initial EL).

Update – May 2021:

Travelers opted to reset the cat bond with a higher attachment point for the 2021 hurricane season, lifting the attachment from $1.87 billion to $1.98 billion for its final year.

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