Sakura Re Ltd. (Series 2021-1)

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

  • Issuer: Sakura Re Ltd.
  • Cedent / sponsor: Sompo Japan Insurance & affiliates
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Japanese typhoon, Japanese flood, US earthquake
  • Size: $400m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Mar 2021

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

This is the first catastrophe bond to be sponsored by Japanese headquartered international insurance and reinsurance group Sompo in four years and the first where the company is seeking reinsurance against multiple-perils from multiple-regions.

A new Bermuda based special purpose insurer named Sakura Re Ltd. has been registered recently for the purposes of issuing catastrophe bond programs and notes for Sompo, with this set to be its first issuance.

We’re told that Sompo Japan Insurance is the ceding company, but that this new catastrophe bond will also cover losses under its affiliates, including the Bermuda based underwriting unit Sompo International.

However, sitting between Sompo and the SPI Sakura Re Ltd. is Aon’s protected cell company White Rock Insurance, which will act as a ceding reinsurance entity for the purposes of this catastrophe bond.

Sakura Re Ltd. will look to issue two tranches of Series 2021-1 notes, that will be sold to cat bond investors and the proceeds used to collateralize reinsurance agreements to provide Sompo with the coverage.

We assume White Rock Insurance will enter into retrocession agreements with Sakura Re, while also entering into reinsurance agreements with Sompo Japan Insurance.

Both tranches of notes will provide their catastrophe reinsurance to Sompo across a four-year term and on an indemnity trigger and per-occurrence basis, we’re told.

However, the mechanics of the coverage is a little less typical, but functionally will enable Sompo to benefit from multi-peril and multi-regional reinsurance protection.

Sakura Re will issue a $100 million tranche of Series 2021-1 Class A notes that are exposed to Japanese typhoons and floods on a first-event basis and if limit is left would also cover US earthquakes on a second-event basis.

The $100 million of Class A notes will have an initial expected loss of 0.99% and are being offered to cat bond funds and investors with spread guidance of 2.5% to 3%, we understand.

Sakura Re will also issue a $100 million tranche of Series 2021-1 Class B notes, but in this case they will be that are exposed to US earthquakes on a first-event basis and if limit is left would also cover Japanese typhoons and floods on a second-event basis.

The $100 million of Class B notes are a bit riskier and will have an initial expected loss of 1.17%, with the notes offered to cat bond funds and investors with spread guidance of 3.75% to 4.25%.

It’s an interesting way of structuring the coverage, but makes sense from a practical point of view, as this Sakura Re catastrophe bond will be able to cover Sompo’s peak international risks, in a very flexible manner with this approach to securing reinsurance.

Update 1:

The target for this Sakura Re cat bond has been doubled, with each tranche now targeting $200 million of coverage, for total reinsurance protection of $400 million.

At the same time, the price guidance has been adjusted for each tranche, with the deal now looking likely to come in at the mid-point of initial guidance, or better for Sompo.

The now $200 million of Class A notes have had their price guidance range lowered to 2.25% to 2.5%.

The now $200 million of Class B notes have had their price guidance reduced and fixed at the mid-point of 4%.

Update 2:

At final pricing the $200 million of Class A notes have had their pricing fixed at the low-end of reduced guidance, at 2.25%. The $200 million of Class B notes remained priced at 4%, the initial guidance mid-point.

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