Swiss Re Insurance-Linked Fund Management

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Ursa Re Ltd. (Series 2023-1)

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Ursa Re Ltd. (Series 2023-1) – At a glance:

  • Issuer: Ursa Re Ltd.
  • Cedent / sponsor: California Earthquake Authority
  • Placement / structuring agent/s: Swiss Re Capital Markets is sole structuring agent and joint bookrunner. Aon Securities is joint bookrunner.
  • Risk modelling / calculation agents etc: EQECAT Inc.
  • Risks / perils covered: California earthquake
  • Size: $200m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Apr 2023

Ursa Re Ltd. (Series 2023-1) – Full details:

The California Earthquake Authority (CEA) is back in the catastrophe bond market to sponsor its first issuance of 2023, an Ursa Re Ltd. (Series 2023-1) issuance.

This year, the California Earthquake Authority (CEA) has reverted back to using its Ursa Re Ltd. special purpose insurer in Bermuda for this new cat bond, which it has not utilised since 2019, having used Sutter Re and Ursa Re II since then.

For 2023, global reinsurance firm Swiss Re will be acting as ceding reinsurer, to pass on the capital markets backed cover from this cat bond issuance to the CEA, which is the ceding insurer for the deal.

As a result, Ursa Re Ltd. is aiming to issue two tranches of Series 2023-1 notes, that will be sold to investors and the proceeds used to collateralize a retrocessional reinsurance agreement with Swiss Re, while Swiss Re will in turn reinsure the CEA.

That’s a different approach to other recent CEA cat bonds, where the company has directly faced its SPI and entered into a reinsurance agreement with it.

The notes will provide the CEA with annual aggregate reinsurance against California earthquakes over a just more than two years and seven month term, with maturity expected at the end of November 2025, we’re told.

A $100 million or greater tranche of Class AA notes will be issued by Ursa Re Ltd., that will provide reinsurance across a billion dollar layer of the CEA’s reinsurance tower, above a retention of $8.475 billion we understand.

The Class AA notes will have an initial attachment probability of 1.13%, an initial expected loss of 1.05% and are being offered with spread price guidance in a range from 6% to 6.5%, sources told us.

A $75 million or greater tranche of Class C notes will provide their reinsurance across a $500 million layer of the CEA’s tower above a retention of $4.407 billion.

The Class C notes that Ursa Re will issue come with an initial attachment probability of 2.43%, an initial expected loss of 2.3% and are being offered with spread price guidance in a range from 8.75% to 9.25%, it’s said.

It’s going to be interesting to watch how this new cat bond executes for the CEA, given the insurer has significant reinsurance needs and has in the past secured large amounts from the capital markets.

Update 1:

The California Earthquake Authority’s (CEA) target for its latest catastrophe bond has been lifted to $200 million. At the same time the price guidance has been lowered for each of the tranches of notes.

The Class AA notes are now targeted at between $100m and $125m in size, while their spread price guidance has been lowered to a range from 5.5% to 6%.

The Class C notes are now targeted at between $75m and $100m, while their spread price guidance has been lowered to a range from 8.25% to 8.75%.

We’re told there is a chance the deal could reach the maximum $225m across the two layers if pricing is conducive.

Update 2:

The CEA priced this latest cat bond at $200 million in size, with an average price decline of around 10%.

The Class AA tranche of notes will provide $125 million of cover and were priced at 5.5%, so the lowest-end of reduced guidance, a roughly 12% decline in price while marketing.

The riskier Class C notes remained at their initial $75 million in size, priced at the lowest-end of reduced guidance again, of 8.25% for a roughly 8% decline while marketing.

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