Matterhorn Re Ltd. (Series 2020-2)

Global reinsurance player Swiss Re has returned for a third Matterhorn Re catastrophe bond transaction, it’s second issuance from the vehicle of 2020.

As third-party sources of reinsurance capital continue to play an increasing role for Swiss Re, the company is looking to expand on its capital markets backed sources of retrocession with a new Matterhorn Re 2020-2 transaction that targets up to $275 million or more of coverage against losses from U.S. named storms and also certain extreme mortality risks.

For its second Matterhorn Re cat bond of this year, Swiss Re’s special purpose insurance vehicle will issue and sell two tranches of Series 2020-2 notes to investors, with the proceeds used to collateralise underlying retro reinsurance agreements between Matterhorn Re Ltd. and Swiss Re.

The transaction is targeting between $200 million and $275 million of limit protection across the two tranches to be issued.

The first tranche, Series 2020-2 Class A, targets between $75 million and $100 million of protection and will cover certain losses from both northeast U.S. named storms and also extreme mortality events in Australia, Canada and the UK.

The Class A tranche will feature two triggers for each section of protection, with a weighted PCS industry loss index trigger used for the northeast U.S. named storm and hurricane risks, and a weighted mortality index trigger used for the mortality risks.

The second tranche, Series 2020-2 Class B, targets between $125 million and $175 million of protection for Swiss Re and will cover losses from U.S. named storms across the U.S. coastline from Texas to Maine, we understand.

The Class B tranche will use a weighted PCS industry loss index trigger.

Both tranches will provide per-occurrence protection against losses from the named storm and mortality risks

We’re told that the up to $100 million Class A tranche of notes will have an initial expected loss of 1.41% base for the northeast U.S. named storm risks and 0.98% for the Australian, Canadian and UK mortality risks.

The Class A notes were at first offered to investors with initial price guidance of 4.75% to 5.5%, but we’re told this coupon pricing has now been fixed towards the lower-end at 5%.

The Class B notes are said to have an expected loss at the base case of 2.76% base, so are a much riskier layer of retro reinsurance coverage.

The Class B tranche of notes were launched to investors with an initial price guidance range of 6.5% to 7%, sources said. But this has now been narrowed and has fallen to below the lower-end of initial guidance at 6.25% to 6.5%.

This transaction is particularly noteworthy, as it is the first catastrophe bond to cover extreme mortality risks that we’ve listed in our comprehensive Deal Directory since 2015.

Update 1:

At close, the Class A tranche (named storm and mortality risks) settled at $80 million in size, while the Class B named storm only tranche settled at the upper end of targets at $175 million, so combined offering a total of $255 million of protection.

The Class A tranche of notes, which have an initial expected loss of 1.41% base for the northeast U.S. named storm risks and 0.98% for the Australian, Canadian and UK mortality risks, were priced at at 5%, towards the lower end of guidance, we understand.

While the Class B notes, with an expected loss at the base case of 2.76% base, have priced at 6.5%, we believe, the lower-end of initial guidance.

Now completed Swiss Re has $855 million of retrocessional reinsurance protection in-force from the Matterhorn Re catastrophe bond program.

We understand the Class A tranche will cover Swiss Re until the end of 2023, so almost four years, while the Class B notes are on-risk only until just after the end of the November 2021, so covering two U.S. hurricane seasons.

Update – January 2024:

Rising mortality in a number of regions of the world has affected this Swiss Re sponsored catastrophe bond.

These Matterhorn Re 2020-2 Class A cat bond notes had been marked down on rising mortality index data, resulting in them being marked for bids of around 80 cents on the dollar as long ago as September, but we’re now told the pricing declined further, falling to a level inviting bids in the 70’s in October and November.

The price dropped again in December, with the bid for these notes marked down to the 30’s by late December, reflecting the fact a mark-to-market implied 60% to 70% loss of the $80 million of principal could now be expected.

We understand that, where these Matterhorn Re 2020-2 Class A notes are concerned, a rise in mortality trend data has worsened the outlook for the notes.