Ursa Re II Ltd. (Series 2020-1)

The California Earthquake Authority (CEA) has returned to the catastrophe bond market with its second transaction of 2020, seeking at least $250 million of fully collateralised earthquake reinsurance protection through this Ursa Re II Ltd. (Series 2020-1) deal.

For its next catastrophe bond deal, the CEA has reverted back to the Ursa Re moniker, registering a new Bermuda-based special purpose insurer named Ursa Re II Ltd. for the purpose of its latest capital markets foray.

The newly registered Ursa Re II Ltd. vehicle will issue two tranches of notes in this Series 2020-1 issuance, sources told us.

Ursa Re II will issue a Class AA tranche of notes of $150 million or greater in size and a Class D tranche of notes of $100 million or greater, we are told.

Each of these tranches of notes will be sold to third-party ILS investors and funds, with the proceeds used to collateralised underlying earthquake reinsurance agreements between Ursa Re II and the CEA.

The notes will provide the CEA with at least $250 million of California earthquake reinsurance protection across a three-year term, on an annual aggregate and indemnity trigger basis.

We understand that the $150 million of Class AA notes are the less risky layer from this Ursa Re II 2020-1 cat bond issuance, having an initial expected loss of 0.9% and being marketed to ILS investors with price guidance in a range from 3.5% to 4%.

Meanwhile, the $100 million of Class D notes are higher risk, having an initial expected loss of 2.53% and being offered to ILS investors with coupon guidance of 5.75% to 6.25%.

Update 1:

At pricing, this new catastrophe bond from the California Earthquake Authority (CEA) more than tripled in size of the offering, reaching $775 million.

Ursa Re II Ltd. will issue two tranches of notes that are being sold to investors and the proceeds used to collateralise underlying earthquake reinsurance agreements between Ursa Re II and the CEA, to provide the insurer with California earthquake reinsurance protection across a three-year term, on an annual aggregate and indemnity trigger basis.

Sources now tell us that the least risky Class AA tranche of notes, that were originally sized at $150 million, are now set to reach $425 million in size, while the Class D notes, that were originally $100 million in size, are now set to reach $350 million.

The now $425 million of Class AA notes, the less risky layer from this Ursa Re II 2020-1 cat bond issuance, which have an initial expected loss of 0.9%, were originally offered to ILS investors with price guidance in a range from 3.5% to 4%, but we’re told this settled at the mid-point of 3.75% in the end.

The now $350 million of Class D notes, which have an initial expected loss of 2.53%, were first offered to ILS investors with coupon guidance of 5.75% to 6.25%, but this has now settled at the top-end of guidance at 6.25%, we understand.

As a result, both tranches of notes offer attractive multiples to investors and represent an increase in pricing from other recent CEA sponsored catastrophe bond deals, which perhaps goes some way to explaining the strong appetite seen from investors for this new deal.