Torrey Pines Re Ltd. (Series 2022-1)

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

  • Issuer: Torrey Pines Re Ltd.
  • Cedent / sponsor: Palomar Specialty Insurance Company
  • Placement / structuring agent/s: GC Securities and TigerRisk Capital Markets & Advisory are joint structuring agents and joint bookrunners
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: US earthquake
  • Size: $275m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: May 2022

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

This is the third catastrophe bond to be sponsored by Palomar Insurance Holdings, the speciality California-headquartered insurer that provides largely catastrophe exposed property products.

For its third cat bond issuance, Palomar Insurance has returned to use its Bermuda based special purpose insurer (SPI) Torrey Pines Re Ltd., through which it sponsored a cat bond in 2017. Its second cat bond was issued out of Singapore.

Torrey Pines Re Ltd. will seek to issue two tranches of notes that will be sold to investors and the proceeds used to collateralize reinsurance agreements between the SPI and Palomar Specialty Insurance Company.

The reinsurance agreements will provide Palomar with just over three years (to June 2025) of US-wide earthquake reinsurance protection, on an indemnity and per-occurrence basis, we understand.

The target is to secure at least $300 million of reinsurance protection, a significant capital markets addition when you consider Palomar already has $400 million of US quake cover from its 2021 cat bond.

Torrey Pines Re will issue a Class A tranche of notes, preliminarily sized at $175 million we understand, with an attachment point of $825 million and covering losses up to $1.125 billion for Palomar.

The Class A notes will have an initial expected loss of 1.23% and are being offered to cat bond investors with price guidance in a range from 3.35% to 3.85%, we’re told.

A currently $125 million Class B will have an attachment point of $250 million, so being much riskier, and exhaust at $425 million.

The Class B notes will have an initial expected loss of 3.77% and are being marketed to investors with price guidance in a range from 6.5% to 7%, sources said.

Update 1:

Palomar continues to target up to $300 million of reinsurance with this new Torrey Pines Re 2022-1 catastrophe bond, but the pricing has risen considerably across each of the tranches being issued.

The Class A tranche of notes are now targeted at between $175 million and $200 million, but we’re now told the Class A notes spread guidance has been elevated, to 5%, which is a roughly 39% rise from the initial guidance mid-point.

The higher risk Class B tranche of notes is now targeting from $75 million to $100 million of reinsurance for Palomar, but the coupon has been elevated as well, to 8.25%, which represents a 22% increase from the mid-point of initial guidance.

Update 2:

At final pricing, Palomar secured $275 million of reinsurance from its latest Torrey Pines Re 2022-1 catastrophe bond.

The Class A tranche of notes achieved the upper $200 million target, with the coupon priced at the elevated 5%, which represents a roughly 39% increase from the initial guidance mid-point.

The higher risk Class B tranche of notes secured the lower-end target of $75 million, while its coupon was priced at the elevated 8.25%, representing a 22% increase from the mid-point of initial guidance.

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