Windmill II Re DAC (2020)

Dutch insurance group Achmea has returned to the catastrophe bond market to sponsor what will be the companies third transaction and to renew and upsize its previous capital markets coverage from its 2017 cat bond deal.

Achmea is a large Dutch insurance group, owning a number of brands across property, casualty, life, health and pensions. The firm also owns Achmea Reinsurance Company NV, a group reinsurer which predominantly retro cedes risk from the Achmea group to the reinsurance market as well as offering some reinsurance to selected third parties.

For this new Windmill II Re DAC catastrophe bond, Achmea Reinsurance Company NV will act as the ceding reinsurer to interface with the capital market investors, while we’re told that subsidiaries Achmea Schadeverzekeringen N.V and N.V. Hagelunie will be the ceding insurance beneficiaries of the coverage.

For this new Windmill II Re DAC catastrophe bond, Achmea Reinsurance Company NV will act as the ceding reinsurer to interface with the capital market investors, with the coverage cascading down as reinsurance to two of Achmea’s main property insurance underwriting subsidiaries.

We’re told that Windmill II Re DAC will look to issue roughly $90 million (EUR 80m) of notes in this issuance, which will be sold to investors and the proceeds used to collateralise retrocessional reinsurance agreements between the issuing vehicle and Achmea Re. Achmea Re will then enter into reinsurance agreements with the two primary insurers.

The Windmill II Re DAC 2020 catastrophe bond will provide Achmea with a source of European windstorm reinsurance protection, on an indemnity trigger and per-occurrence basis, we understand.

The cat bond will provide Achmea with coverage across a four-year term, so with this deal the insurer is looking to lock-in its capital markets backed reinsurance for a year longer than the maturing deal. That maturing 2017 Windmill Re cat bond was also only roughly $46 million in size, so this new arrangement is almost twice the coverage.

We understand that while the covered peril is windstorms across Europe, this could also include convective storms, hail, tornadoes and other windstorm related events, so the coverage is a little broader than just for the main European extratropical storm season.

The EUR 80 million of notes being issued by Windmill II Re DAC will have an initial expected loss of 2.56% and are being offered to cat bond investors with coupon price guidance in a range from 4.25% to 4.75%, we’re told.

It will be interesting to see how that goes down with ILS funds and investors, given the recent demand for much higher returns on U.S. peril catastrophe bonds.

This is the first Euro peril cat bond to hit the market in a while, so could be a good test case for investor appetite for a diversifying region, compared to the glut of U.S. peril deals seen in recent weeks.

We understand the Windmill II Re DAC cat bond will occupy a layer of Achmea’s reinsurance tower attaching at EUR 365m and exhausting at EUR 615m, so a EUR 250m layer. It will sit alongside traditional reinsurance, so there could be a chance for the cat bond to upsize and occupy more of the layer if the pricing is deemed attractive by the sponsor.

Update 1:

The offering target size has been lifted by as much as 25%, with the single tranche of notes now expected to be between EUR 80 million and EUR 100 million in size.

We’re also told that the guidance has been fixed at the lower-end of that range, with the notes set to pay investors a coupon of 4.25%.

Update 2:

European insurer Achmea is aiming to secure slightly lower than anticipated pricing for its new Windmill II Re DAC (2020) catastrophe bond transaction, with the upsized EUR 100 million deal potentially set to come in with a slightly lower coupon now.

The latest update from our sources is that Achmea is hoping to get the protection at an even more favourable price, with the now EUR 100 million of notes offered with price guidance of 4% to 4.25%.

Update 3:

Achmea was successful and secured the pricing at the low-end of the reduced range, at 4%, reflecting a roughly 11% reduction in spread from the initial price guidance mid-point.