Torrey Pines Re Ltd. (Series 2023-1)

This is Palomar Specialty’s fourth Torrey Pines catastrophe bond transaction and the company is seeking $150 million or more in reinsurance against earthquake losses from the capital markets with this deal.

Torrey Pines Re will issue two tranches of Series 2023-1 notes, that will be sold to investors and the proceeds used to finance reinsurance arrangements for Palomar.

This new cat bond will cover Palomar Specialty Insurance Company and Palomar Excess and Surplus Insurance Company, we understand.

The Torrey Pines Re 2023-1 catastrophe bond will provide Palomar with California specific and US-wide earthquake reinsurance protection, across a three-year term and on an indemnity and per-occurrence basis, we’ve learned.

The first, currently $100 million, Class A tranche of notes will provide California quake cover, from an attachment point of $1.225 billion, running to $1.375 billion, giving them an initial attachment probability of 0.96%, an initial expected loss of 0.90%, and they are offered with price guidance in a range from 5.25% to 5.75%, we understand.

Meanwhile, a currently $50 million Class B tranche of notes will provide US-wide earthquake cover, from an attachment point of $650 million to an exhaustion point of $750 million, giving them an initial attachment probability of 2.56%, an initial expected loss of 2.38%, and these are offered with price guidance in a range from 8.25% to 8.75%.

Update 1:

Palomar has lifted the target for this new Torrey Pines Re 2023-1 catastrophe bond by one third, with $200 million of earthquake reinsurance protection now sought from the capital markets.

What was a $100 million Class A tranche of California earthquake risk exposed notes are now targeted as $150 million in size, we understand, so the source of the upsizing for this new cat bond from Palomar.

The Class A California quake notes have an initial expected loss of 0.90% and were first offered with price guidance in a range from 5.25% to 5.75%, but we’re told that has now been reduced to a range of 5% to 5.25%.

The Class B tranche of notes that will provide US-wide earthquake cover remain at $50 million in size, sources said.

With their initial expected loss of 2.38%, the Class B notes were first offered with price guidance in a range from 8.25% to 8.75%, but that has now also been lowered to a range of 7.5% to 8.25%, we understand.

Update 2:

This new Torrey Pines Re 2023-1 cat bond priced to provide Palomar the upsized target of $200 million of reinsurance, one-third larger than the initial target.

The Class A California quake specific notes grew by 50% to price to provide $150 million of reinsurance, while their spread was eventually finalised at 5%, so below the initial guidance and a roughly 9% drop from the initial mid-point while being marketed.

The Class B US-wide quake notes remained at $50 million in size, but priced again below initial guidance for a spread of 7.5%, reflecting a roughly 12% drop from the initial mid-point of price guidance.