A new Mayflower Re Ltd. (Series 2023-1) catastrophe bond has been launched to provide $175 million or more in multi-peril catastrophe reinsurance to the Massachusetts Property Insurance Underwriting Association (MPIUA).
This will be the fourth catastrophe bond issued to benefit the Massachusetts Property Insurance Underwriting Association (MPIUA), which is a residual market property insurance association, or FAIR Plan, for the Commonwealth of Massachusetts.
It is the first cat bond issued for the Massachusetts MPIUA since 2017, marking its return to the ILS market in search of catastrophe reinsurance from capital market investors.
Mayflower Re Ltd. is a new Bermuda-based issuance vehicle and it will issue and sell two tranches of Series 2023-1 cat bond notes to investors, with the proceeds used to collateralize retrocessional reinsurane agreements with global reinsurer Hannover Re, which is acting as the fronting risk transformer for this cat bond.
Hannover Re will in turn provide the catastrophe reinsurance to the MPIUA.
This Mayflower Re 2023-1 cat bond will provide a source of indemnity based and annual aggregate reinsurance to the MPIUA over a three-year term to the end of June 2026, we’re told.
The two tranches of notes issued will cover losses from Massachusetts named storm, severe thunderstorm and winter storm events, the same range of perils covered by the two previous Cranberry Re cat bonds that benefited the MPIUA, issued in 2015 and 2017.
The Class A tranche of notes are preliminarily sized at $75 million and would cover losses from an attachment point of $850 million, exhausting at $1.25 billion of losses to the MPIUA risk pool, we’re told.
That gives the Class A notes an initial attachment probability of 1.322%, an initial base expected loss of 1.084% and these notes are being marketed to investors with spread price guidance in a range from 4.25% to 4.75%, we understand.
The Class B tranche of notes are larger, preliminarily sized at $100 million, and riskier so would cover losses from an attachment point of $550 million, exhausting at $850 million of losses, its’ said.
That gives the Class B notes an initial attachment probability of 1.954%, an initial base expected loss of 1.598% and these notes are being marketed to investors with spread price guidance in a range from 5% to 5.5%, sources explained.
Which are relatively thin spreads and low multiples, in the current market pricing environment. But, being a northeast and single-state risk exposure, that is perhaps to be expected.
It’s encouraging to see relatively large reinsurance buyers like the MPIUA return to the cat bond market after a period away from it, suggesting they see more value in cat bonds as a complementary and well-priced source of reinsurance now, than they have for the last few years.