Swiss Re Insurance-Linked Fund Management

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Spectrum Capital Ltd. (Series 2017-1)

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Spectrum Capital Ltd. (Series 2017-1) – At a glance:

  • Issuer: Spectrum Capital Ltd. (Series 2017-1)
  • Cedent / sponsor: Tokio Millennium Re (Bermuda)
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. named storms, earthquakes, severe thunderstorms, wildfires, winter storms. Canada earthquakes
  • Size: $430m
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: Jun 2017

Spectrum Capital Ltd. (Series 2017-1) – Full details:

This catastrophe bond is being brought to market for risk transfer counterparty Tokio Millennium Re (Bermuda), we understand, as the company seeks a source of fully-collateralized, multi-peril retrocessional reinsurance protection.

Newly formed Bermuda special purpose insurer Spectrum Capital Ltd. will look to issue two tranches of Series 2017-1 notes, which will be sold to capital markets investors to raise a targeted $250 million in funds to collateralize two underlying reinsurance agreements, which we’re told will be structured to offer derivative-style protection and run for almost four years.

The coverage provided to Tokio Millennium Re by the Spectrum Capital 2017-1 cat bond will be against losses from U.S. named storms, earthquakes, severe thunderstorms, wildfires, winter storms, and Canada earthquakes.

A Spectrum Capital Series 2017-1 Class A tranche of notes is targeting $100 million of protection for Tokio Millennium Re and will provide its coverage on an annual aggregate basis. A Class B tranche of notes targets $150 million of coverage, and is structured to provide per-occurrence coverage for second and subsequent loss events, we understand.

Both tranches of notes will utilise an industry loss trigger, based on PCS reported insurance market losses for covered events. The Class B tranche will only become activated after a first qualifying loss is reported and it seems only be activated for a set two year period (except for in the final annual risk period), after which it would take another two events to trigger these notes.

The $150 million of Class A, annual aggregate and industry loss triggered notes that will be issued by Spectrum Capital have an initial attachment probability of 3.64%, expected loss of 2.72% and are being marketed to cat bond investors with price guidance in a range from 6% to 6.75%, we are told.

The $100 million of Class B, second and subsequent event and industry loss triggered notes, have an annualised attachment probability across the term of the deal of 0.89%, an expected loss of 0.69% and are offered with coupon guidance from 3.25% to 4%.

Update 1:

The price guidance has been narrowed for both tranches, with the Class A notes also seeing the price drop. The Class A notes were launched with coupon guidance in a range from 6% to 6.75%, but we understand this has been narrowed and fallen to 5.75% to 6%, so below the originally marketed range.

Meanwhile the Class B notes which had initial price guidance of 3.25% to 4% have seen their pricing narrow towards the middle of that range, at 3.5% to 3.75%.

We’re told the Spectrum Capital cat bond transaction could also be upsized before it closes, if the final pricing is conducive to doing so. We’ll update you should we hear anything further on that.

Update 2:

As suspected the Spectrum Capital cat bond has been upsized, increasing by 72% to $430 million for sponsor Tokio Millennium Re.

The first tranche of notes, a Spectrum Capital Series 2017-1 Class A, launched aiming for $100 million of annual aggregate reinsurance coverage. This tranche has now grown in size to $160 million, we understand.

The Class A notes were launched with coupon guidance in a range from 6% to 6.75%, which then dropped to a narrowed 5.75% to 6% and this has now been fixed at the lowest end of reduced guidance, at 5.75% we’re told.

The Class B tranche were launched at $150 million in size, aiming for per-occurrence retro reinsurance coverage against losses from second and subsequent qualifying events. This tranche has now jumped in size to $270 million.

The Class B notes had initial price guidance of 3.25% to 4%, which then narrowed towards the middle of that range at 3.5% to 3.75%. We understand that pricing for the Class B tranche has now been fixed at 3.5%, so the bottom of the narrowed range and towards the lower end of the initial guidance.

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