Veraison Re Ltd. (Series 2023-1)

This is the debut catastrophe bond from new sponsor GeoVera Insurance Holdings, Ltd., as the company seeks $150 million or more in capital markets backed fully-collateralized US earthquake reinsurance protection through this Veraison Re Ltd. (Series 2023-1) issuance.

GeoVera has established a vehicle that will be licensed as a special purpose insurer (SPI) in Bermuda called Veraison Re Ltd. for the purposes of issuing catastrophe bonds, Artemis has learned.

For its debut cat bond, GeoVera’s new SPI Veraison Re Ltd. will seek to issue two tranches of Series 2023-1 notes, that will be sold to investors and the proceeds from that sale used to collateralize underlying excess-of-loss reinsurance agreements between the SPI and GeoVera itself, to pass on the coverage.

The Veraison Re 2023-1 catastrophe bond issuance is targeting $150 million of reinsurance protection for GeoVera and subsidiaries, with the notes issued set to provide it a source of per-occurrence US earthquake reinsurance cover.

That US earthquake reinsurance from this Veraison Re cat bond will cover GeoVera over a three-year term, across three annual risk periods, but with the first only beginning at March 2023, we’re told, so with maturity at the start of March 2026.

As a result, these notes will be issued off-risk for their first few months, with a 2.5% per annum spread to be paid to compensate investors until the first annual risk period kicks in.

Veraison Re will issue a $75 million tranche of Class A notes, that will have an attachment point of $675 million and cover a percentage of losses up to $940 million, we understand.

The Class A notes will come with an initial expected loss of 0.65% and they are being offered to investors with coupon guidance of 6% to 6.5%, we’re told.

An also $75 million tranche of Class B notes are being offered as well, that will have an attachment point of $250 million and cover a percentage of losses up to $350 million, so being riskier.

The Class B notes will come with an initial expected loss of 2.91% and are being offered to investors with coupon price guidance of 9.75% to 10.5%, sources said.

We’re also told that this is predominantly a California earthquake cat bond, given more than 80% of the expected loss for each tranche of notes is attributed to that state in the modelling, with Washington state the next biggest and so making this a largely west coast risk.

Update 1:

The Veraison Re 2022-1 catastrophe bond issuance took a little longer than expected, with the issuance date pushed back and some changes made to the terms around issues including extension spreads, we’re told.

But the deal looks set to get completed, as the Class A notes remain $75 million, but with pricing at the top of guidance at 6.5%.

At the same time, we’re told the Class B tranche are now expected to be between $70 million and $75 million, but with a much higher coupon now marketed at 12%.

Sources told us they expect this first Veraison Re cat bond will get completed at the original target size of $150 million, but at these newly elevated price levels.

Update 2:

The cat bond was eventually priced to offer GeoVera the full $150 million of targeted reinsurance protection.

As a result, Veraison Re Ltd. will issue a $75 million tranche of Class A notes, that come with an initial expected loss of 0.65% and will pay a coupon of 6.5%, the top-end of the initial 6% to 6.5% guidance.

It will also issue a $75 million Class B tranche of notes, that come with an initial expected loss of 2.91% and will pay a coupon of 12%, which is some 19% above the mid-point of the initially marketed guidance range of 9.75% to 10.5%.