Tailwind Re Ltd. (Series 2022-1)

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Tailwind Re Ltd. (Series 2022-1) – At a glance:

  • Issuer: Tailwind Re Ltd.
  • Cedent / sponsor: Validus Holdings
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S., Canada, Puerto Rico, U.S. Virgin Islands named storms and earthquakes
  • Size: $400m
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: Jan 2022

Tailwind Re Ltd. (Series 2022-1) – Full details:

This is the second Tailwind Re Ltd. catastrophe bond to be sponsored by AIG’s reinsurance subsidiary Validus Holdings, as the Bermuda-headquartered carrier seeks out annual aggregate retrocessional protection for losses from its peak perils of named storms and earthquakes on an industry loss basis.

This transaction can be considered a renewal of the $400m Tailwind Re 2017-1 cat bond that matures in early January 2022.

Tailwind Re Ltd., Validus’ Bermuda domiciled special purpose insurer (SPI), will seek to issue four tranches of notes that will be sold to cat bond investors and the proceeds used to collateralize retro reinsurance agreements between the issuer and Validus Holdings.

We understand the retrocessional reinsurance cover from this cat bond will extend across Validus Re, Talbot Underwriting and its syndicate 1183 at Lloyd’s of London.

The Tailwind Re 2022-1 cat bond will provide Validus and its covered subsidiaries with a capital market-backed source of collateralized retrocession covering U.S., Canada, Puerto Rico and U.S. Virgin Islands named storm and earthquake risks.

The reinsurance protection from the Tailwind Re 2022-1 cat bond will be structured on an annual aggregate basis, using a weighted PCS industry loss index trigger and with coverage set to run across three years to the end of 2024.

That’s shorter than the four years of protection the Tailwind Re 2017-1 cat bond provided.

Four tranches of Series 2022-1 cat bond notes will be issued by Tailwind Re, all offering different levels of risk and return for investors, while covering the same perils and territories on an industry loss and annual aggregate basis, we understand.

A $100 million Class A tranche of notes is the lowest risk layer of this cat bond, having an initial attachment probability of 3.92%, an initial expected loss of 3.63% and being offered to investors with price guidance of 6.75% to 7.5%.

An also $100 million Class B layer of notes is the next riskiest, having an initial attachment probability of 5.24%, an initial expected loss of 4.5% and being offered to investors with price guidance of 8.75% to 9.5%.

A $75 million tranche of Class C notes sit under those, with an initial attachment probability of 6.4%, an initial expected loss of 5.82% and being offered to investors with price guidance of 11.75% to 12.75%.

Finally, an as yet unsized Class D tranche of notes sit lowest down, so are the riskiest tranche, having an initial attachment probability of 7.3%, an initial expected loss of 6.84% and being offered to investors with price guidance of 15.25% to 16.25%

All four tranches of notes sit directly on top of one another and feature an index deductible that needs to be surpassed for catastrophe events to qualify as covered losses.

Update 1:

Validus’ target for this new Tailwind Re 2022-1 catastrophe bond has now increased, as sources said it now seeks at least $400 million of protection, perhaps $425 million if the upper-target is achieved.

The Class A tranche remains $100 million in size, but the pricing has now been fixed at the low-end of guidance, at 6.75%.

The Class B tranche has upsized to $150 million, with pricing now fixed at the low-end of 8.75%.

The Class C tranche of notes has also upsized to $100 million, with pricing now been fixed at the low-end again of 11.75%.

The Class D tranche of notes is now aiming for between $50 million and $75 million of coverage, with price guidance also having fallen to a new tighter range of 14.75% to 15.25%.

Update 2:

Validus’ Tailwind Re 2022-1 catastrophe bond eventually settled at $400 million in size, just missing the upper-end target.

The Class A tranche remained at $100 million in size, with pricing finalised at the low-end of guidance, at 6.75%.

The Class B tranche upsized to $150 million, with pricing finalised at the low-end of 8.75%.

The Class C tranche of notes upsized to $100 million, with pricing finalised at the low-end of 11.75%.

The Class D tranche of notes eventually settled at $50 million in size, while their pricing was finalised at the bottom-end of reduced guidance at 14.75%.

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