A new issuance of privately placed catastrophe bond notes, named after their segregated account as Aquarelle, is likely to be, at $250 million in size, the largest private cat bond or insurance-linked securities (ILS) placement ever issued.
At least, this new $250 million Artex SAC Limited – Aquarelle Notes transaction is the largest private placement catastrophe bond, or ILS issuance, we’ve ever recorded in our extensive Deal Directory.
The transaction has come to market through the Artex Risk Solutions owned segregated account reinsurance transformer platform, Artex SAC Limited.
It’s the first transaction from the Artex SAC (segregated accounts company) platform of 2021 and, at $250 million, far larger than anything else we’ve seen transacted through the vehicle.
Artex’s SAC Limited vehicle is based in Bermuda and facilitates private cat bond transactions, acting as a transformer for the risks and a securitization vehicle to issue notes to be sold to either individual or groups of investors, depending on whether a transaction is syndicated or bilateral in nature.
This Aquarelle private cat bond issuance has been completed and listed in Bermuda using the vehicle’s Artex SAC Limited ILS Note Program II.
The transaction saw Artex SAC Limited acting for the Segregated Account Series named “Aquarelle” to issue two tranches of notes that have been placed with qualified institutional investors or insurance-linked securities (ILS) funds.
We assume, given the private nature of the deal, that the notes have been placed with a smaller group of investors or ILS funds, rather than broadly syndicated across the market.
Sometimes these private placement cat bond deals can be bilateral, between a ceding company and single investor. But being $250 million in size it would make sense for the deal to have been privately placed with a group or club of investors and funds.
Artex SAC Limited has issued a $50 million tranche of Series 2021 Class A principal-at-risk Aquarelle notes and a $200 million tranche of Series 2021 Class B principal-at-risk notes, we understand.
The notes, which have been admitted to listing on the Bermuda Stock Exchange (BSX), all have maturity due at December 20th 2023, suggesting they could cover two US wind seasons perhaps, or a year and a half for another peril.
As ever, make the assumption that a private cat bond or ILS issuance like this features notes linked to certain property catastrophe risks, most likely representing a securitisation of either an indemnity or industry loss triggered collateralised reinsurance or retrocession transaction.
The transaction will have been securitised to make the reinsurance linked investment compatible with certain ILS fund or investor mandates, offering the investors an option for secondary liquidity as well.
In addition, given attractive pricing conditions in the catastrophe bond market, the use of a private placement through a managed structure like the Artex SAC vehicle, can be a cost-effective way for a sponsor to access the capital markets.
At this time, when every cat bond is pricing down and upsizing and multiples-at-market are lower than a year ago, it may have proved particularly attractive to introduce a cat bond layer into a sponsors reinsurance or retro program.
Given the $250 million size of the deal, we have to assume the sponsor is a relatively large player, with a reinsurance tower capable of holding such a large private cat bond deal, alongside its traditionally sourced protection.
In the past we’ve seen major buyers of reinsurance like the California Earthquake Authority tapping the ILS market using private issuances, so it could be a similarly large buyer taking advantage of current cat bond investor appetite to secure additional protection from the capital markets.
Structures like the Artex SAC Limited vehicle offer an efficient way for ceding companies and investors to achieve risk transfer and a full securitisation of the risk, into a form that suits a more liquid or catastrophe bond focused ILS fund mandate.
Issuance of this private cat bond, or private insurance-linked securities (ILS) arrangement, takes total private cat bond issuance for 2020 to just over $521 million, based on 16 transactions now listed in our Artemis Deal Directory.
That’s now ahead of 2020’s $351 million of privately placed cat bonds from 20 deals for the full-year, but still a long way behind 2019’s almost $904 million of private cat bonds issued in 29 individual transactions, 2018’s $902.5 million from 26 transactions and 2017’s $1.05 billion of private cat bond issuance from 28 deals.