Matterhorn Re Ltd. (Series 2019-1)

Swiss Re has returned to the capital markets to sponsor its first natural catastrophe bond in a number of years, utilising a special purpose insurance and segregated cell vehicle named Matterhorn Re Ltd., which the reinsurance firm had registered in 2018.

The last time we have Swiss Re listed as a sponsor in our Deal Directory was in 2015 for a Vita Capital extreme mortality cat bond, prior to that it was 2013 with the last natural cat bond the firm had sponsored, Mythen Re Ltd. (Series 2013-1).

So it’s very encouraging to learn that Swiss Re has not given up on the catastrophe bond market and sees value in sponsoring new transactions this year.

For this issuance Swiss Re will be using a new cat bond vehicle for the first time.

Matterhorn Re Ltd. was registered as a Bermuda domiciled special purpose insurer and segregated accounts company in late 2018 and for this first issuance under the vehicle, a single tranche of Series 2019-1 notes will be issued and sold to ILS investors, with the resulting proceeds set to collateralize a retrocessional reinsurance agreement between Matterhorn Re and Swiss Re.

The notes are being termed SR2019-1 by the issuer, we understand, to denote Swiss Re as the sponsor of this transaction.

Matterhorn Re has been marketed as a $100 million transaction to begin, with investor interest currently being sought for the deal and its resulting notes.

We understand the $100 million of Matterhorn Re Series 2019-1 notes will provide Swiss Re with a source of collateralized retro reinsurance against certain losses from northeast U.S. named storms, on an industry loss trigger and per-occurrence basis.

The covered area includes the U.S. states of Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia, we’re told.

The Matterhorn Re notes could be triggered when a PCS reported industry loss for a named storm affecting the northeastern U.S. states rises above an index attachment point of $17.5 billion, covering losses up to an index exhaustion point at $25 billion, we’re told. That’s equivalent to an attachment probability of 2.38% in the first year.

This Matterhorn Re cat bond will have a tenure of roughly 18 months, so providing Swiss Re with retrocessional reinsurance protection across two U.S. hurricane seasons, with maturity slated for November 20th 2020.

The Matterhorn Re notes are being issued at a discount to par, so akin to a zero coupon arrangement.

The notes have a one-year modelled expected loss of 1.92% and across the entire 18 month term it would be 3.81%.

We understand that the pricing guidance pegs the notes at between 90.5% to 91.5% of par value, which could be considered similar to an 8.5% to 9.5% coupon range for them.

Update 1:

The Matterhorn Re 2019-1 cat bond from Swiss Re upsized by 150% while marketing, to issue $250 million of notes.

At the same time the pricing dropped to the tight-end of guidance, or 91.5% of par value, so a coupon equivalent of 8.5% over the term of the cat bond deal.