Topanga Re Ltd. (Series 2021-1)

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

  • Issuer: Topanga Re Ltd.
  • Cedent / sponsor: Farmers Insurance Group
  • Placement / structuring agent/s: Swiss Re Capital Markets is joint structuring agent and sole bookrunner. TigerRisk Capital Markets is joint structuring agent and co-manager.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: US named storm, earthquake, severe weather, wildfire
  • Size: $100m+
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Dec 2021

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

This is the first catastrophe bond transaction to be sponsored by Farmers Insurance Group, the US insurer that operates across a number of reciprocal insurer brands and has Zurich Insurance Group as a parent.

The company is seeking multi-year and multi-peril US catastrophe reinsurance protection from the capital markets with this Topanga Re Ltd. catastrophe bond.

Farmers Insurance Group aims to secure a minimum $100 million of per-occurrence catastrophe reinsurance protection and an as yet unsized amount of annual aggregate catastrophe reinsurance protection, through the support of ILS funds and investors with this Topanga Re cat bond deal, sources have told us.

Topanga Re Ltd. was registered as a special purpose insurer (SPI) in Bermuda earlier this year and the vehicle will seek to issue two tranches of Series 2021-1 notes, which will be sold to investors and the proceeds used as collateral to underpin reinsurance transactions between the SPI and Farmers Insurance Group.

The two tranches of notes will both provide Farmers with reinsurance protection against certain losses from named storms, earthquakes, severe weather and wildfires affecting the United States.

A $100 million Class A tranche of notes are being issued to provide Farmers with per-occurrence and indemnity trigger protection over a four-year term to the end of 2025, we understand.

The Class A tranche of notes have an initial attachment probability of 1.88%, an initial expected loss of 1.49% and are being offered to catastrophe bond investors with price guidance in a range from 4.25% to 4.75%.

The Class B tranche of notes are as yet unsized, we’re told, and target annual aggregate indemnity reinsurance coverage for Farmers, over just a two-year term to the end of 2023.

The Class B tranche of notes come with an initial attachment probability of 1.34%, an initial expected loss of 1.03% and are being offered to cat bond investors with a particularly high, already fixed coupon at 15%.

Quite why the Class B notes are offering such a high multiple is unclear, as we lack information on the transaction to fully-understand that.

It could be that the notes have a cascading feature and could drop-down if inuring reinsurance beneath them is eroded, which would raise the attachment probability, but we cannot be certain. It is also a reflection of the high cost of aggregate reinsurance protection, of course, but it seems likely there is something else structural to this high coupon.

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