Titania Re Ltd. (Series 2023-1)

This is the third in the Titania Re catastrophe bond series to be sponsored by Bermuda based global reinsurance company Ariel Re, as it looks to again tap the capital markets for retrocessional reinsurance via its Lloyd’s Syndicate 1910 operation.

Syndicate 1910 is the ultimate ceding company, which is the main underwriting vehicle that private equity backed reinsurer Ariel Re principally uses for its global reinsurance underwriting business.

Bermuda registered special purpose insurer (SPI) Titania Re Ltd. will seek to issue two tranches of Series 2023-1 notes, that will be sold to investors and the proceeds used to provide Ariel Re with a multi-year source of retro reinsurance to cover certain losses from U.S. 50 state, Puerto Rico, U.S. Virgin Islands, D.C. and Canada named storms and earthquakes.

The cat bond will provide its coverage across a three-year term and three risk periods, to February 2026.

It’s also interesting to note the inclusion of a carbon offset feature within this new cat bond from Ariel Re, as that will see the reinsurer looking to offset some of the carbon from housing rebuild and replacement after a qualifying catastrophe event occurs.

Ariel Re’s two previous Titania Re cat bonds had each only featured a single tranche of notes, providing annual aggregate protection.

This time, Ariel Re has two tranches of notes on offer in this Titania Re 2023-1 cat bond deal, one to provide multi-peril aggregate protection, the second to provide single peril (named storm) per-occurrence coverage.

Titania Re Ltd. will issue a Class A tranche of Series 2023-1 notes that are currently sized as $65 million, with this layer of protection structured on an annual aggregate basis, covering both the named storm and earthquake perils across the aforementioned territories.

The Class A notes come with an initial attachment probability of 3.04%, an initial base expected loss of 2.59% and are being offered to cat bond investors with spread guidance of 13% to 13.75%.

A currently $50 million Class B tranche of Series 2023-1 notes will provide per-occurrence named storm only protection, across the same territories and over the same three-year term.

The Class B notes come with an initial attachment probability of 4.58%, an initial base expected loss of 3.82% and are being offered to investors with spread guidance in a range from 13.5% to 14.25%.

For a pricing comparison, the Titania Re 2021-2 notes are closest to the 2023-1 Class A notes, being multi-peril, which had an initial expected loss of 3.32% and priced to pay investors a spread of 6.5%.

Update 1:

Ariel Re is aiming to upsize this cat bond slightly to $125 million, while the price guidance has been narrowed and lowered for both tranches of notes.

The Class A tranche of Series 2023-1 notes were first marketed at $65 million in size, but we’re told this is now targeted at up to $75 million, while the price guidance has been lowered to 12.75% to 13%.

The Class B tranche remains $50 million in size but their price guidance has also been lowered and narrowed to 13.25% to 13.5%, so both of these tranches could price at or below the bottom-end of initial guidance.

Update 2:

Ariel Re is targeting even lower pricing for its latest catastrophe bond.

The Class A notes, which have an initial base expected loss of 2.59%, were first offered to cat bond investors with spread guidance of 13% to 13.75%, but that price guidance was lowered at first to 12.75% to 13%, and now has been lowered again to between 12.25% and 12.75%.

For the Class A notes, that represents a -5% shift in pricing from the initial mid-point, even if they price at the top-end of the now twice lowered guidance, so 12.75%. Should they price lower, it would represent a near -7% shift if they closed at the new lower mid-point of 12.5%.

The Class B notes, which have an initial base expected loss of 3.82%, were first offered to investors with spread guidance in a range from 13.5% to 14.25%, but that guidance was first lowered and narrowed to 13.25% to 13.5%, and has now been reduced again, marketed today with a range of 12.75% to 13.25%.

For the Class B notes, that represents a possible -5% shift in pricing should they be finalised at the upper-end of the latest guidance, at 13.25%, or a -7% shift if they settle further down at the new mid-point of 13%.

Update 3:

At final pricing the Class A tranche of notes was fixed at $75 million in size, while the spread dropped to the low-end of reduced guidance, at 12.25%.

The Class B tranche of notes was fixed at $50 million in size, while the spread was also finalised at the low-end of reduced guidance, as 12.75%.