Torrey Pines Re Ltd. (Series 2024-1)

This is Palomar Insurance’s fifth and potentially its largest Torrey Pines catastrophe bond transaction so far, with the company seeking $400 million or more in reinsurance against earthquake losses in California from the capital markets with this deal.

As with other recent cat bonds sponsored by Palomar, this new issuance will provide reinsurance protection to both Palomar Specialty Insurance Company and Palomar Excess and Surplus Insurance Company, we understand.

Bermuda based Torrey Pines Re Ltd. is set to issue three tranches of Series 2024-1 catastrophe bond notes, that will be sold to investors and the proceeds used to collateralize reinsurance agreements to protect the Palomar underwriting entities on a multi-year basis.

All three tranches of notes will provide Palomar with reinsurance protection for California earthquake losses, on an indemnity and per-occurrence basis, sources told Artemis.

The covered area can be expanded to include any additional states of Palomar’s choosing after the first reset, we understand.

Two tranches of notes will provide three years of reinsurance to the start of June 2027, the third just two years to the start of June 2026, which is likely a way to stagger the maturity dates on this larger issuance.

The first tranche, a $200 million three-year Class A layer, would attach their coverage at $750m of losses and exhaust it at $1.1bn, so are the highest in the reinsurance tower and the most risk-remote.

The Class A notes have an initial attachment probability of 1.92%, an initial expected loss of 1.58% and are being offered to investors with price guidance in a range from 5.5% to 6%, we are told.

The second tranche, a $125 million three-year Class B layer, would attach their coverage at $500m of losses and exhaust it at $700m.

The Class B notes have an initial attachment probability of 2.69%, an initial expected loss of 2.34% and are being offered to investors with price guidance in a range from 6.75% to 7.25%, we understand.

The final two-year $75 million Class C tranche of notes are the most junior and so risky, with an attachment point at $325m and exhaustion at $425m.

The Class C notes have an initial attachment probability of 3.64%, an initial expected loss of 3.32% and are being offered to investors with price guidance in a range from 8.5% to 9%, we are told.

At $400 million from launch, this has the potential to be Palomar’s largest catastrophe bond yet, eclipsing its $400 million issuance from 2021.

Update 1:

Palomar is set to upsize its latest Torrey Pines Re 2024-1 catastrophe bond to $415 million, which will make this its largest cat bond yet.

The first Class A tranche are now sized at $210 million with their price fixed at the upper-end of 6%.

The second Class B tranche are now sized at $130 million, with the price also shifted to the top-end and fixed at 7.25%.

The final two-year Class C tranche of notes remain at their initial target of $75 million in size, while the spread has now been fixed at the top-end to pay investors 9%.

Update 2:

We’re told that at final pricing this Torrey Pines Re 2024-1 catastrophe bond was finalised to provide Palomar $420 million in earthquake reinsurance.

The first Class A tranche priced to provide $215 million in reinsurance with their spread fixed at the upper-end of 6%.

The second Class B tranche are $130 million in size, with the price also finalised at the top-end of 7.25%.

The final two-year Class C tranche of notes remained at their initial target of $75 million in size, while the spread was finalised at the top-end to pay investors 9%.