Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

$250m Aquarelle private cat bond gets variable reset at cedent request


Two tranches of privately placed catastrophe bond notes from the $250 million Artex SAC Limited – Aquarelle Notes transaction that came to market in 2021 and was thought to be the largest private cat bond ever, have been through a variable reset process at the request of the ceding insurer.

adjust-resetWhen it was issued in May 2021,  the Aquarelle transaction was the largest private placement catastrophe bond, or insurance-linked securities (ILS) issuance, we’d ever recorded in our extensive Deal Directory.

The notes cover an unnamed cedent against certain property catastrophe related losses, providing it with either reinsurance or retrocession.

The two tranches of notes both reach final maturity in late December 2023, so provide the unnamed cedent with multi-year protection.

Many private cat bonds are structured with an underlying industry-loss warranty (ILW), catastrophe swap, or other reinsurance arrangement and the majority do not have the variable reset feature that is now a staple of more formal 144A catastrophe bond issues.

But it’s become apparent that the Aquarelle private cat bond did feature a variable reset option for the sponsor in the term sheet and now the sponsor, or cedent, has taken up its option to update the risk metrics for the Aquarelle catastrophe bond, so enabling it to adjust precisely where it sits and provides its coverage within the ceding insurers reinsurance tower.

At issuance, the Aquarelle transaction saw Artex SAC Limited, the private cat bond platform operated by Artex, acting for a Segregated Account Series named “Aquarelle” to issue two tranches of notes that were placed with qualified institutional investors or insurance-linked securities (ILS) funds.

The $50 million Class A tranche of notes issued by Artex SAC in respect of the Aquarelle segregated account have had their risk metrics updated so as the attachment point is now $1.39 billion, the exhaustion point is $1.835 billion, the modelled annual expected loss is 9.2% and the updated interest spread is 15.75%.

The $200 million Class B tranche of Aquarelle notes issued by Artex SAC have had their risk metrics updated so as the attachment point is now $2.98 billion, the exhaustion point is $4.208 billion, the modelled expected loss is 4.14% and the updated interest spread is 9.16%.

We understand this variable reset was actually effective as of December 13th 2021.

When the Aquarelle private cat bond was issued we did not have any of these risk metrics, so we cannot compare to the pre-reset data points unfortunately.

But now we have this updated risk data for the notes, it’s clear that the sponsor, or ceding insurer, must be a large player to warrant an attachment point in the billions and to require reinsurance or retrocession coverage at such high levels.

Also, these attachments are indemnity levels we understand, so we now know this Aquarelle private cat bond features an indemnity trigger as well.

It shows a particularly sophisticated protection buyer looking to the private cat bond market and demonstrates how these privately placed and often fast to put in place arrangements can still offer a sophisticated level of coverage for their sponsors.

You can read all about this Artex SAC Limited – Aquarelle Notes  private cat bond transaction in our Deal Directory, which contains details of every catastrophe bond issued to-date.

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