Sutter Re Ltd. (Series 2023-1)

The California Earthquake Authority (CEA) is back in the catastrophe bond market for the second time in 2023.

The CEA has returned to the catastrophe bond market in search of a further $300 million or more in collateralized California earthquake reinsurance protection from the capital markets, sponsoring a Sutter Re Ltd. (Series 2023-1) cat bond.

Sutter Re Ltd. will look to issue two tranches of notes that will be sold to investors and the proceeds used to collateralize retrocession agreements with global reinsurer Hannover Re who will front the capital markets for the CEA in this transaction, while Hannover Re will then enter into reinsurance agreements to provide the coverage to the CEA, we’ve learned.

The two tranches of Series 2023-1 notes issued by Sutter Re will provide the CEA with annual aggregate California earthquake reinsurance on an indemnity trigger basis across a three-year and three annual risk period term.

A $175 million tranche of Class B notes will attach above a retention of $5.651 billion of losses, we’re told, giving them an initial attachment probability of 1.94%, an initial expected loss of 1.86% and these notes are being offered to cat bond investors with price guidance in a range from 6.75% to 7.25%.

A $125 million tranche of Class E notes are riskier, attaching above a retention of $2.994 billion of losses, giving them an initial attachment probability of 3.51%, an initial expected loss of 3.28% and the price guidance on offer to cat bond investors in this case is from 9.75% to 10.5%, we understand.

We’re told each layer of notes will participate as a percentage in a $500 million layer of the CEA’s reinsurance tower, while for loss events to be reported on they will need to cause an ultimate net loss of at least $350 million each.

Update 1:

The size target for this issuance has been lifted to between $375 million and $425 million, we understand.

The Class B tranche of notes had started off with a $175 million target, but we’re now told are pitched at between $200 million and $225 million in size.

The Class B notes come with an initial expected loss of 1.86% and were initially offered to cat bond investors with price guidance in a range from 6.75% to 7.25%, but we’re told that guidance has now been fixed at the low-end of 6.75%.

The Class E tranche of notes were at first a $125 million offering, but we understand these are now seeking from $175 million to $200 million of reinsurance for the CEA.

The Class E layer is riskier, having an initial expected loss of 3.28% and these notes were first offered with price guidance of between 9.75% and 10.5%, but we’re now told the spread has also been fixed at the low-end of 9.75%.

Update 2:

We’ve learned that the CEA has now secured this new Sutter Re 2023-1 catastrophe bond at the upsized $425 million target size.

Both tranches of notes were secured at their low-ends of initial price guidance, with the Class B notes $225 million in size with a spread of 6.75% and the Class E notes $200 million in size with a spread of 9.75%.