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Torrey Pines Re Ltd. (Series 2017-1)

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Torrey Pines Re Ltd. (Series 2017-1) – At a glance:

  • Issuer: Torrey Pines Re Ltd. (Series 2017-1)
  • Cedent / sponsor: Palomar Specialty Insurance Company
  • Placement / structuring agent/s: GC Securities is lead structuring agent and sole bookrunner. TigerRisk Capital Markets & Advisory is co-structuring agent and co-manager.
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: U.S. named storms, severe thunderstorms and earthquakes
  • Size: $166m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: May 2017

Torrey Pines Re Ltd. (Series 2017-1) – Full details:

This Torrey Pines Re Ltd. 2017-1 issuance is the first catastrophe bond to be sponsored by primary insurer Palomar Specialty Insurance Company.

Torrey Pines Re Ltd. (named after a San Diego area location) is a newly established special purpose vehicle set up to issue cat bonds to protect Palomar Specialty Insurance and its subsidiaries, we understand.

In this 2017-1 issuance, Torrey Pines Re will seek to issue three tranches of Series 2017-1 notes, which will be sold to ILS and cat bond investors in order to fully collateralize the underlying reinsurance arrangements between Torrey Pines Re Ltd. and Palomar.

The targeted amount of coverage is $143 million at launch, we’re told, with the reinsurance protection from the Torrey Pines Re cat bond set to provide Palomar with three years of coverage against losses from U.S. named storms, U.S. earthquakes and U.S. severe thunderstorms.

The multi-peril cat bond protection will be on a per-occurrence basis with the three tranches of notes all providing indemnity coverage and each able to drop-down as stated reinsurance layers beneath the cat bond were eroded by loss events, we understand.

A currently $45 million Class A tranche of notes will be issued to provide U.S. earthquake only protection, and have an initial attachment probability of 1.62%, an expected loss of 1.26% (both based on RMS v. 15 we’re told) and are offered to ILS investors with coupon guidance of 2.75% to 3.25%.

A $48 million Class B tranche also provide U.S. earthquake cover only, have an initial attachment probability of 2.67%, an expected loss of 2.08% (again RMS v. 15) and are offered with a spread guidance of 3.75% to 4.25%, we understand.

Finally, a $50 million Class C tranche of notes is the multi-peril layer of coverage, featuring U.S. named storm, earthquake and severe thunderstorm protection. This tranche has an attachment probability of 5.63%, an expected loss of 4.08% (both RMS v 15) and are offered with pricing guidance of 5.75% to 6.5%.

All three tranches sit above stated reinsurance layers which can be eroded, but interestingly the reinsurance layers are all multi-peril in nature, which we assume means that if these are eroded the earthquake only tranches of the Torrey Pines Re cat bond could drop-down anyway.

Update 1:

As the deal approached pricing it has increased in size by by 16% and now looks set to secure a $166 million source of capital market investor backed reinsurance for the sponsor.

The Class A tranche of U.S. earthquake only notes, which is the lowest risk, launched at $45 million in size and had price guidance of 2.75% to 3.25%. Now, this tranche remains at $45 million but the price guidance has been fixed at the middle at 3%, we understand.

The $48 million Class B tranche of U.S. earthquake risk only notes, which is the mid risk tranche, have grown in size to $66 million and at the same time pricing has dropped to the bottom of the initial 3.75% to 4.25% guidance, so looks set to settle at 3.75%.

The final $50 million Class C tranche of notes, which will provide multi-peril coverage and are the highest risk, has also grown slightly to $55 million we’re told, while the price guidance of 5.75% to 6.5% has now been fixed just above the mid-point at 6.25%.

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