Swiss Re Insurance-Linked Fund Management

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Nakama Re Ltd. (Series 2016-1)

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Nakama Re Ltd. (Series 2016-1) – At a glance:

  • Issuer: Nakama Re Ltd. (Series 2016-1)
  • Cedent / sponsor: Zenkyoren
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Japan earthquake
  • Size: $700m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Sep 2016

Nakama Re Ltd. (Series 2016-1) – Full details:

Regular catastrophe bond sponsor Zenkyoren has returned to the ILS market looking for at least $250 million of three-year aggregate reinsurance protection against Japanese earthquake risks, through a Nakama Re Ltd. (Series 2016-1) issuance.

The transaction would cover Zenkyoren until October 2021, so a five-year layer of reinsurance containing within it three, three-year aggregate risk periods which overlap each other.

Artemis understands from investor sources that Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives to give its full name, is seeking to sponsor the issuance of two tranches of notes through its Nakama Re Ltd. special purpose reinsurance vehicle.

Proceeds from the sale of the two Series 2016-1 tranches issued by Nakama Re would be used to collateralise reinsurance agreements to provide protection to Zenkyoren for losses caused by earthquakes hitting Japan. The coverage will also include earthquake induced tsunami, fire, flood and sprinkler related water damage, we’re told.)

A $200m Class 1 tranche and a $50m Class 2 tranche of cat bond notes are currently slated to be issued by Nakama Re, with both exposed to earthquakes and providing protection on a three-year aggregate and indemnity trigger basis.

The Class 1 tranche would cover losses from JPY 2.15 trillion and cover losses up to JPY 2.5 trillion, while the Class 2 notes would cover a riskier layer, attaching at JPY 1.2 trillion and covering losses to JPY 1.5 trillion. Both tranches have JPY 270 billion franchise deductible.

The less risky $200m of Class 1 notes have an annualised expected loss of 0.49% and are being offered to investors with coupon price guidance of 2.2% to 2.5%, while the Class 2 have an annualised expected loss of 1.47% and price guidance of 3.25% to 3.5%, we’re told.

Update 1:

Investor demand has been high, as the $200m Class 1 tranche of Nakama Re 2016-1 notes has now more than doubled to $550m in size, while the $50m Class 2 tranche of cat bond notes has tripled in size to $150m.

Further demonstrating ILS and catastrophe bond investor demand, as well as strong execution by the deal team, both of the tranches of notes look set to price at the bottom end of initial guidance, also reflecting ILS investors increasing comfort with these three-year aggregate type cat bonds.

The lower risk now $550m of Class 1 notes, which have an annualised expected loss of 0.49%, are set to price at the lowest end of initial guidance at 2.2% we’re told, which would offer investors a multiple of almost 4.5 times the expected loss.

Meanwhile the riskier $150m of Class 2 Nakama Re 2016-1 cat bond notes, which have an annualised expected loss of 1.47%, are set to price at 3.25% which is also the lowest end of guidance, offering investors a multiple of 2.2 times the expected loss.

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