Swiss Re Insurance-Linked Fund Management

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Northshore Re II Ltd. (Series 2019-1)

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Northshore Re II Ltd. (Series 2019-1) – At a glance:

  • Issuer: Northshore Re II Ltd. (Series 2019-1)
  • Cedent / sponsor: AXIS Capital Holdings Ltd. subsidiaries
  • Placement / structuring agent/s: GC Securities is structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. named storms (inc. Puerto Rico & Virgin Islands), U.S. & Canada earthquake, European windstorm
  • Size: $165m
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: Jun 2019

Northshore Re II Ltd. (Series 2019-1) – Full details:

Insurance and reinsurance firm AXIS Capital has returned to the capital markets to sponsor what will be its fourth catastrophe bond, as the company seeks to expand its sources of retrocessional reinsurance capacity by tapping ILS investor appetite.

Using its Northshore Re II Ltd. special purpose insurance vehicle again, which it used for previous $350 million Northshore Re II Ltd. (Series 2017-1) and a $200 million Northshore Re II Ltd. (Series 2018-1) deals, AXIS is seeking a very similar type of coverage and an expansion to its retrocession and reinsurance program, we’re told.

Northshore Re II Ltd. will seek to issue a single tranche of Series 2019-1 notes that are currently sized at $100 million, with the notes set to be offered to cat bond investors and the proceeds from their sale used to collateralize a retrocessional reinsurance agreement with the company.

The coverage will benefit AXIS’ subsidiaries, including its Lloyd’s syndicate, insurance and reinsurance companies, so effectively provide broad coverage for AXIS’ property catastrophe exposure in peak zones.

The notes will provide AXIS with four years of collateralized reinsurance and retrocession protection against certain losses from U.S. named storms (including in Puerto Rico and the U.S. Virgin Islands), U.S. & Canada earthquakes and European windstorm catastrophe events.

The protection will be on an annual aggregate basis, across the four annual risk periods, and the cat bond features industry loss triggers for each covered peril that will be weighted on a state, regional or localised basis from PCS for the U.S. risks and PERILS for EU windstorm risks.

The currently $100 million of notes, which we’d imagine stand a good chance of upsizing, will have an initial attachment probability of 3.3% and an initial expected loss of 2.84%, we understand.

The trigger features an index franchise deductible for each loss event, after which the qualifying losses will aggregate upwards across the year as index points towards an attachment level for the notes, where they would begin to see losses.

The notes are being offered to ILS investors with pricing guidance in a range from 7.75% to 8.25%, we understand, providing room for a reasonable multiple that is aligned with other recent transactions.

In fact the multiple looks much higher than AXIS’ 2018 Northshore Re II cat bond, which with an initial expected loss of 4.47% being riskier than this deal, priced at just 7.75%.

So this Northshore Re II 2019-1 catastrophe bond from AXIS Capital should offer investors a better return, in terms of multiple at least, for taking on its exposure than the previous transaction that was issued only one-year ago.

Update 1:

The Northshore Re II 2019-1 catastrophe bond from AXIS was well-received by investors and upsized by 65% to reach $165 million at pricing.

At the same time the cat bond issuance priced below the low-end of guidance, to offer investors a coupon of 7.5%. This remains aligned with multiples seen across the market in recent months.

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