Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Ursa Re Ltd. (Series 2015-1)

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Ursa Re Ltd. (Series 2015-1) – At a glance:

  • Issuer: Ursa Re Ltd. (Series 2015-1)
  • Cedent / sponsor: California Earthquake Authority
  • Placement / structuring agent/s: Swiss Re Capital Markets is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: EQECAT
  • Risks / perils covered: California earthquake
  • Size: $250m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Sep 2015

Ursa Re Ltd. (Series 2015-1) – Full details:

Ursa Re, a Bermuda domiciled SPI, will seek to issue a single tranche of Series 2015-1 Class B notes. The target is to raise at least $150m of cover through the sale of the notes to ILS investors, to collateralize a reinsurance agreement between the SPI and the CEA.

The Ursa Re 2015-1 cat bond will feature an indemnity trigger, with reinsurance protection afforded on an annual aggregate basis to the CEA. The transaction will have a three-year term, running until mid-September 2018.

We’re told that the notes will cover losses on a $500m layer of the CEA’s reinsurance program, triggering at $2.581 billion of losses to the insurer and covering around 30% of the losses at the $150m tranche size. That leaves room for the CEA to upsize the deal if the market is conducive and investor appetite strong.

The Class B tranche of notes have an initial attachment probability of 2.89%, we understand, with an expected loss of 2.62% and an exhaustion probability of 2.39%.

The notes are being offered to investors with a coupon range of 4.75% to 5%, which at the 2.62% expected loss would result in a multiple of 1.81x at the lower end of the pricing range, 1.86x at the midpoint or 1.91x at the top end of price guidance.

The Ursa Re 2015-1 cat bond features a variable reset, as so many catastrophe bonds now do. We understand that this would allow the CEA to move the layer of coverage from as low as a $1.861 billion trigger point, up to as high as $3.045 billion, providing flexibility for its future reinsurance needs over the term of the cat bond.

The notes offered have a similar risk profile, in terms of attachment probability and expected loss, to the Class B notes issued by Ursa Re in 2014, which eventually priced at 5% which was the top end of guidance. It will be interesting to see how this 2015 deal prices by comparison.

Swiss Re Capital Markets is acting as the sole structuring agent and bookrunner for the cat bond. EQECAT is providing the earthquake risk modelling services for the deal.

The CEA is only an insurer of residential earthquake risks so as a result the covered business does not include any commercial properties in California.

Update 1:

The Ursa Re 2015-1 cat bond issuance grew in size by two-thirds to $250m while marketing.

At the same time the pricing settled at the upper end of guidance, offering investors in the bond a coupon of 5%.

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