The target size for the second renewal of the parametric catastrophe bond that provides earthquake related workers compensation protection to benefit the Kaiser Permanente health group has been increased, with the Acorn Re Ltd. (Series 2021-1) transaction now expected to secure $475 million of capital market-backed capacity for the covered parties.
This Acorn Re 2021-1 catastrophe bond now looks set to more than renew the soon to mature $400 million Acorn Re Ltd. (Series 2018-1) transaction, with coverage very similar to the expiring deal.
Like the previous two Acorn Re cat bond deals, Hannover Re is acting as ceding reinsurance company again, sitting in front of a single named ceding insurer, Oak Tree Assurance Ltd.
Oak Tree Assurance Ltd. is the Vermont-domiciled workers compensation captive owned by the Kaiser Permanente group of health plan companies.
So this second renewal of the Acorn Re U.S. west-coast parametric earthquake cat bond will ultimately provide coverage primarily for the Kaiser workers compensation captives’ insured exposure to earthquake risks.
But the Acorn Re 2021-1 cat bond also offers some protection to other Hannover Re reinsureds that have exposure within the parametric earthquake box as well, the same as the 2015 and 2018 transactions.
Now, we’re told that the issuance size looks likely to increase to $475 million, with pricing likely to come in at the lower-end of initial coupon guidance.
So now, Acorn Re Ltd., the Bermuda domiciled special purpose insurance vehicle, is expected to issue a single $475 million tranche of Series 2021-1 Class A notes.
As a result, the Acorn Re 2021-1 cat bond notes are expected to provide the covered parties, Kaiser Permanente via the Oak Tree Assurance Ltd. workers compensation captive, and other reinsureds of Hannover Re, with a $475 million source of capital markets source of per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region across a three-year period.
The now $475 million of Series 2021-1 notes offered by Acorn Re Ltd. have an annualised attachment probability of 1.2% and an annualised expected loss of 0.89%.
The price guidance they launched with was from 2.5% to 3%, but we’re now told this cat bond is expected to settle at the low-end, to pay investors a 2.5% coupon.
So that would be a multiple-at-market of 2.8 times the expected loss.
This compares to the Acorn Re 2018-1 cat bond, which priced at 2.75% with an expected loss of around 0.81%, so had a multiple of roughly 3.4 times the EL and the Acorn Re 2015-1 cat bond notes that paid a 3.4% coupon on an expected loss of 0.74%, so offered an almost 4.6 times EL multiple.
Which implies further softening thanks to ample investor appetite for this renewal cat bond deal, compared to the previous issuances under the same program.
Further underscoring the value the cat bond market holds for those seeking reinsurance and retrocession at this time and suggesting we could see keen pricing as we move through the expected to be busy fourth-quarter of issuance.
At this stage it appears this is how this new Acorn Re cat bond will settle, but we’ll update you should anything change.