Swiss Re Insurance-Linked Fund Management

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Tramline Re II Ltd. (Series 2014-1)

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Tramline Re II Ltd. (Series 2014-1) – At a glance:

  • Issuer: Tramline Re II Ltd. (Series 2014-1)
  • Cedent / sponsor: Amlin AG
  • Placement / structuring agent/s: Aon Benfield Securities are sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. named storm, U.S. earthquake, European windstorm
  • Size: $200m
  • Trigger type: Industry loss index
  • Ratings: ?
  • Date of issue: Dec 2014

Tramline Re II Ltd. (Series 2014-1) – Full details:

Amlin AG, the Swiss based reinsurance subsidiary of Amlin plc, is to sponsor its third catastrophe bond transaction with this deal, we understand. Of the two previous deals, the $150m Tramline Re Ltd. (Series 2011-1) from December 2011 and the $75m Tramline Re II Ltd. (Series 2013-1) from mid-2013, the 2011 transaction is scheduled to mature in January 2015.

As a result it seems Amlin is returning to the cat bond market in the hopes of renewing this slice of protection it benefits with from the capital markets.

In this deal Bermuda domiciled special purpose insurance vehicle Tramline Re II Ltd. is seeking to issue a single $150m tranche of Series 2014-1 Class A notes. The sale of the notes will be used to provide fully-collateralized reinsurance protection to Amlin AG over a four-year terms to the end of 2018.

The single tranche of Tramline Re II 2014-1 cat bond notes will be exposed to U.S. named storms (so tropical storms and hurricances), U.S. earthquakes and European windstorms, all on a per-occurrence basis.

All three perils feature an industry loss index trigger, with the U.S. named storm and earthquake coverage using a PCS state weighted index trigger and the European windstorm coverage using a PERILS country weighted index trigger.

This transaction is a much higher risk layer of cat bond notes than the majority of the recent deals to come to market. We understand that the notes initial attachment probability is 6.68%, exhaustion probability is 3.97%, while the expected loss is 5.12%. The notes will attach at an index calculation level of 500 and exhaust at 700 on the index, we’re told.

In terms of pricing guidance, we understand that the $150m of Tramline Re II 2014-1 notes are being marketed to investors with a coupon range of 10% to 10.75%.

Comparing the multiple of Amlin AG’s maturing cat bond deal from 2011 with this new one shows that the pricing is very keen. The Tramline Re Ltd. 2011-1 cat bond had an expected loss of 3.49%, so by the modeling was lower risk, but paid a coupon of 16.75%, so a much higher coupon. That resulted in a multiple of about 4.8 times the expected loss.

This new Tramline Re II 2014-1 cat bond has an expected loss of 5.12% and potential coupon in the range of 10% to 10.75%, the resulting multiple of this new cat bond could be from 2.1X to 2X the expected loss, which is low even by recent cat bond levels.

Update 1:

This cat bond upsized by 33% while pricing down during marketing to a size of $200m, reflecting strong investor demand.

The price guidance was lowered down to a range of 9.75% to 10%, so narrowed and below the bottom of the original launch coupon range. This reflects investor appetite for higher yielding cat bond notes.

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