Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Matterhorn Re Ltd. (Series 2020-3)

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Matterhorn Re Ltd. (Series 2020-3) – At a glance:

  • Issuer: Matterhorn Re Ltd.
  • Cedent / sponsor: Swiss Re
  • Placement / structuring agent/s: Swiss Re Capital Markets is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. named storm
  • Size: $215m
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: May 2020

Matterhorn Re Ltd. (Series 2020-3) – Full details:

For this Matterhorn Re Ltd. Series 2020-3 cat bond transaction, we’re told Swiss Re is seeking $200 million or more of retrocessional reinsurance protection against named storms in the United States.

We understand the named storm coverage will run all the way around the hurricane exposed coastline of the U.S., from Texas to the northeast.

Matterhorn Re Ltd. will issued three tranches of notes to support this arrangement, we’re told, with all exposed to U.S. named storms on an industry loss index and per-occurrence basis. PCS will be the industry loss data reporting agent.

Targeting $200 million for the issuance, we don’t understand how that will break down across tranches at the moment, but the three tranches will be sold to investors and the proceeds used to collateralise underlying retrocessional reinsurance agreements between Matterhorn Re and Swiss Re, we understand.

We’re told that of the three tranches of notes, Class A and Class B will provide Swiss Re with retro reinsurance protection across two hurricane seasons, with maturity slated for the end of 2021, while the Class C tranche covers just one wind season, to the end of 2020.

The Series 2020-3 Class A tranche of notes that Matterhorn Re will issue are the least risky layer, having an initial expected loss of 1.9%, our sources said.

The Class A tranche of notes are being offered to cat bond investors with price guidance in a range from 6.5% to 7.25%, our sources explained.

The Class B and C tranches are higher risk but are set to cover the same risk layer, as both will have an expected loss of 4.65%, we understand.

However there is a pricing difference, as the Class B tranche of notes that is set to cover Swiss Re for two hurricane seasons is structured with an interest coupon and price guidance of 11.5% to 12.25%.

But, we’re told the Class C tranche that provides coverage for just one wind season, is being issued at a discount to par, so akin to a zero coupon notes arrangement. The pricing guidance puts the notes at between 90.25% to 91.% of par value, which would be considered similar to a 9% to 9.75% coupon range for them.

If this issuance is successful, Swiss Re will have secured more than a billion dollars of retrocessional reinsurance capacity using Matterhorn Re Ltd. in less than one year.

Update 1:

The latest catastrophe bond to be sponsored by reinsurance firm Swiss Re has been successfully upsized 7.5% at pricing, we can reveal, with the Matterhorn Re Ltd. (Series 2020-3) transaction now set to secure the company $215 million of U.S. named storm retrocession.

At the same time, the pricing for the now two-tranche issuance has moved towards the upper-end of the coupon guidance range.

But, by the reinsurance firm electing to issue one tranche of risk as zero-coupon notes with just a one-year tenure, it looks as if Swiss Re has managed to secure relatively attractive pricing for its newest catastrophe bond coverage anyway.

It is the Class B notes that were dropped in the end, meaning that Swiss Re went for the single year of coverage, but structured as a zero-coupon issuance in the end, which we imagine was down to more competitive pricing being available for this tranche.

So here’s how the new Matterhorn Re 2020-3 catastrophe bond will now be issued.

The Series 2020-3 Class A tranche of notes that Matterhorn Re will issue are the least risky layer and provide two years of protection, now sized at $110 million after pricing, with the notes having an initial expected loss of 1.9%. On the pricing, these notes were offered to investors with price guidance in a range from 6.5% to 7.25% and have now been priced at 7%, according to our sources.

The Series 2020-3 Class C tranche of notes, which are higher risk and offer just a single year of coverage, with an initial expected loss of 4.65%, have priced at $105 million in size, we’re told. These notes were offered to investors with price guidance putting the notes at between 90.25% to 91.% of par value, which would be considered similar to a 9% to 9.75% coupon range, but at pricing we’re told this settled at 90.5% of par value, equivalent to 9.5%, so again towards the upper-end of guidance.

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