Swiss Re Insurance-Linked Fund Management

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Phoenician Re Ltd. (Series 2021-1)

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Phoenician Re Ltd. (Series 2021-1) – At a glance:

  • Issuer: Phoenician Re Ltd.
  • Cedent / sponsor: Alphabet Inc.
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and joint bookrunner. Swiss Re is joint bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: California earthquake
  • Size: $275.5m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Dec 2021

Phoenician Re Ltd. (Series 2021-1) – Full details:

This is the third series issuance of catastrophe bond notes to be sponsored by Alphabet Inc., the parent company to technology and internet giant Google.

This new Phoenician Re Ltd. catastrophe bond sees Alphabet Inc. returning to secure additional California earthquake insurance protection for its businesses, including Google’s operations.

The deal sees Alphabet Inc. looking to bring insurance-linked securities (ILS) investors and the capital markets more deeply into its earthquake insurance tower, with the notes set to build out the capital market and ILS fund backed coverage the company has received from its first two series of Phoenician Re notes.

Phoenician Re Ltd., Alphabet’s Bermuda-based special purpose insurer, is targeting issuance of an at least $250 million Series 2021-1 tranche of Class A notes.

This single tranche of notes will be sold to catastrophe bond investors and the proceeds used to collateralize reinsurance agreements that will ultimately cascade down to provide California earthquake insurance coverage to Alphabet and its Google entities.

As with the first two Phoenician Re cat bond issues for Alphabet, global reinsurance company Hannover Re is again fronting and transforming the risk for the tech giant and will enter into retrocessional agreements with the SPI Phoenician Re, then into reinsurance agreements with Alphabet’s Hawaii domiciled captive insurer Imi Assurance, which in turn will provide the insurance protection to Alphabet.

In this way Alphabet and Google can access the capital markets for insurance capacity in an efficient manner, with the global reinsurance company facilitating the transfer of risk to cat bond investors for them.

The $250 million or more of Series 2021-1 notes that Phoenician Re Ltd. issues will provide Alphabet and its Google operations with a three year source of California earthquake insurance protection, on a per-occurrence basis and using an indemnity trigger, we understand.

We’re told that the single Class A tranche of notes will cover losses from an attachment point of $1.5 billion for Alphabet and exhaust at $1.9 billion, which leaves room for the deal to upsize if necessary.

However, these notes will sit alongside and wrap around the earlier Phoenician Re cat bond issues, as the first issuance attached at $1.5 billion of losses to Alphabet with exhaustion of the coverage at $1.75 billion and the second smaller issue attached at $1.75 billion, so sitting on top and covering losses up to a $1.85 billion detachment.

Meaning the new Series 2021-1 cat bond sees Alphabet and Google filling in around the same layers of its tower, suggesting this is an area of the insurance program where earthquake protection is deemed efficient from the capital markets.

The $250 million or more of Series 2021-1 Class A notes that Phoenician Re is marketing to investors have an initial expected loss of 0.51% and are being offered to cat bond investors with price guidance in a range from 2.25% to 2.75%, we’re told.

Update 1:

We understand the target for this catastrophe bond issuance has been upsized to as much as $285 million, while at the same time the pricing has been fixed at the mid-point of initial guidance, at 2.5%.

Update 2:

This new cat bond from Google missed the revised upper-end target slightly, settling to provide the tech giant $275.5 million of earthquake insurance protection.

Pricing remained at the mid-point of initial guidance, at 2.5%, representing a multiple-at-market of just under 5 times the expected loss.

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