Mystic Re IV Ltd. (Series 2025-1)

Liberty Mutual is back in the catastrophe bond market to sponsor a Mystic Re IV Ltd. (Series 2025-1) issuance that will be the tenth in the Mystic Re series of cat bonds from the company.

With this first venture to the cat bond market as a sponsor in 2024 for Liberty Mutual, the company is seeking indemnity based reinsurance over a multi-year term, through a three tranche issuance that has ample room to upsize should the company find market conditions conducive.

It’s notable that this could be the first aggregate cat bond sponsorship from Liberty Mutual, as two tranches of notes offered will provide per-occurrence protection, the third annual aggregate.

For this 2024 cat bond issuance, that will come on-risk from 2025, Liberty Mutual is once again utilising its Bermuda-based special purpose insurer (SPI) Mystic Re IV Ltd.

We’re told that three tranches of Series 2025-1 notes are being offered to cat bond investors, designed to provide Liberty Mutual with at least $225 million in multi-peril collateralized reinsurance protection on both a per-occurrence and annual aggregate indemnity trigger basis.

The notes will provide reinsurance protection to Liberty Mutual and its affiliates across a three calendar year term, from January 1st 2025, we understand.

The Mystic Re IV 2025-1 cat bond will provide Liberty Mutual with reinsurance protection against losses from named storms and earthquakes on an indemnity basis across the first two tranches of notes, and those perils plus severe weather and wildfires from the final aggregate tranche of notes, with losses affecting parts of the US, Canada and the Caribbean all covered by all tranches under this cat bond.

A currently $125 million tranche of Class A notes will provide indemnity per-occurrence reinsurance cover, attaching at $2.5 billion of losses and exhausting at $3.8 billion, which gives them an initial attachment probability of 2.07%, an initial expected loss of 1.41%, and we’re told these notes are offered with spread price guidance in a range from 4.5% to 5%.

A currently $100 million Class B tranche will also provide indemnity per-occurrence reinsurance cover, but attaching lower down at $1 billion of losses and exhausting at $1.75 billion, which gives them an initial attachment probability of 7.88%, an initial expected loss of 5.16%, and we’re told these notes are offered with spread price guidance in a range from 11% to 11.75%.

The final Class C tranche of notes are as yet unsized and will provide Liberty Mutual indemnity annual aggregate reinsurance protection for losses from named storms, earthquakes, severe weather and wildfires, we are told. These notes would attach their coverage after $2.4 billion of losses and protect the insurer to $2.9 billion, but feature a $100 million event deductible and also a cap for fire events outside of California at $500 million.

The Class C aggregate notes come with an initial attachment probability of 5.03%, an initial expected loss of 4.06%, and we’re told these notes are offered with spread price guidance in a range from 13.5% to 14.5%.

Update 1:

We’re now told the final aggregate tranche of notes has been sized as well, taking the overall Mystic Re IV 2025-1 catastrophe bond issuance to $325 million for Liberty Mutual.

The Class A per-occurrence notes remain $125m in size, but with updated price guidance lower at 4% to 4.5%.

The Class B per-occurrence notes remain $100m in size, but also with updated price guidance lower at 10.5% to 11%.

The final Class C annual aggregate tranche of notes have now been sized at $100 million and their price guidance has been fixed at 14%, so the mid-point of the initial range.

Update 2:

There has been no further change in size, but the pricing lowered and tightened again for the two per-occurrence tranches of notes.

The Class A per-occurrence notes remain $125m in size, but with updated price guidance now fixed at 4%.

The Class B per-occurrence notes remain $100m in size, but with updated price guidance lower still at between 10.25% and 10.5%.

The final Class C annual aggregate tranche of notes remain at $100 million with their price guidance fixed at 14%, so the mid-point of the initial range.

Update 3:

Liberty Mutual secured the upsized $325 million target for reinsurance from this Mystic Re IV 2025-1 catastrophe bond.

The Class A per-occurrence notes were finalised at $125m in size with their risk interest spread priced at 4%, which was below the initial guidance range.

The Class B per-occurrence notes were finalised at $100m in size with their risk interest spread priced at 10.25%, also below the initial guidance.

The final Class C annual aggregate tranche of notes were finalised at $100 million with their risk interest spread priced at 14%, which is the mid of initial guidance.