The notes from the Acorn Re Ltd. (Series 2023-1) parametric earthquake catastrophe bond transaction have now been priced and in the end will only provide its sponsor $150 million in protection, so falling short of its upper-target, with pricing seeming to be prioritised.
As we’ve been reporting, this new Acorn Re parametric catastrophe bond was launched to cat bond investors earlier in June, with a goal to secure $100 million in risk capital to provide a capital markets source of earthquake reinsurance cover for the beneficiaries.
As with all of the Acorn Re parametric cat bond deals, this deal sees Hannover Re acting as a ceding reinsurance company, sitting in front of a single named ceding insurer, Oak Tree Assurance Ltd., the Vermont based workers compensation captive insurer owned by the Kaiser Permanente group of health plan companies.
These Acorn Re, U.S. west-coast parametric earthquake catastrophe bonds, provide reinsurance coverage to support the Kaiser Permanente workers compensation captive, covering its insured exposure to earthquake risks across that region (largely centred on California), while also providing additional protection to other Hannover Re reinsureds that have exposure within the parametric earthquake box.
When this deal was launched, Acorn Re Ltd. was aiming to issue a single Class A tranche of notes sized at $100 million, to provide per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region across a term to October 2026.
As we reported last week, the size target was increased, with up to $175 million in risk transfer being sought from the parametric cat bond deal.
Now, we’re told that the Acorn Re 2023-1 cat bond notes have been priced and that has finalised the size of the issuance at $150 million, so a 50% upsizing from its launch but short of the top of its revised size target.
At their launch to investors, the Acorn Re 2023-1 cat bond notes, which have an annualised initial expected loss of 0.91%, were offered with spread price guidance in a range from 4.75% to 5.5%, but as we reported that was lowered to a revised range of 4.25% to 4.75%.
We’re now told that the now confirmed as $150 million of Acorn Re 2023-1 cat bond notes have been priced to pay investors a spread of 4.35%, so well below the initial guidance, in fact a roughly 15% drop from the initially marketed mid-point.
As a result, it appears the sponsors focused on pricing over size of the Acorn Re 2023-1 cat bond, securing very strong execution in the process with the notes set to pay investors a multiple-at-market of almost 4.8 times the expected loss.