Orange Capital Re DAC (Series 2023-1)

This is the second catastrophe bond to be sponsored by the NN Group, or Nationale-Nederlanden, which is seeking to extend its capital markets backed multi-year European catastrophe reinsurance protection with this Orange Capital Re DAC 2023-1 transaction.

NN Group is a life and property-casualty insurance underwriter based in the Netherlands, underwriting its risks largely in that country and some others close to it.

NN Group first entered the catastrophe bond market in 2021, securing €75 million in collateralised European windstorm and severe thunderstorm catastrophe reinsurance with its debut Orange Capital Re DAC 2021-1 issuance.

NN Group is continuing to use Ireland as its domicile, making use of the Orange Capital Re Designated Activity Company (DAC) for the second time for this Series 2023-1 cat bond issuance.

It’s a very similar transaction to the first, as NN Group is looking to secure €75 million or more in catastrophe reinsurance to cover windstorm and severe thunderstorm risks in Belgium and the Netherlands only with this new cat bond.

The coverage will be on an indemnity and per-occurrence basis and risk periods will run across a three year term, from the start of 2024 to the end of 2026.

The ceding company to this cat bond is actually NN Re again, which is the Nationale-Nederlanden internal reinsurance vehicle. that helps NN Group manage its risks, hedge its portfolio and also access private reinsurance markets.

Orange Capital Re (DAC) will issue a single €75 million tranche of Series 2023-1 Class A notes, with them expected to be sold to catastrophe bond investors and the proceeds from that sale used to collateralise reinsurance agreements between the issuer and NN Re.

We understand the notes would attach at €275 million in losses to NN Group and provide reinsurance across a layer to exhaustion at €350 million, suggesting there won’t be any upsizing to come for this second cat bond from NN Group.

As a result they will sit below the Orange Capital Re 2021-1 notes, which attach above €375 million, we’re told.

The Series 2023-1 Class A notes issued by Orange Capital Re DAC will have an initial attachment probability of 3.96%, an initial expected loss of 3.42%, and are being offered to cat bond investors with spread price guidance in a range from 6.75% to 7.5%, sources told us.

For comparison, the 2021 Orange Capital Re cat bond notes had an initial expected loss of 2.02% and priced to pay investors a spread of 3.25%, although they were offered slightly above-par for structural reasons, we understood at the time.

Update 1:

We’re told that the spread guidance for the Orange Capital Re 2023-1 cat bond notes has been narrowed and lifted towards the upper-end of the initial target range, with the notes now offered at 7.25% to 7.5%.

Update 2:

The Orange Capital Re 2023-1 cat bond was finalised at the original target size of €75 million, while the notes eventually priced at the top-end of guidance, to pay cat bond investors a spread of 7.5%.