American International Group (AIG) latest catastrophe bond deal, Tradewynd Re Ltd. (Series 2013-1), has now been successfully completed. The insurer recognises the unique nature of the this cat bond in the market, due to its broad trigger and diverse underlying book of business, and said that with Tradewynd Re it is pleased to further advance capital market participation in insurance risks.
The Tradewynd Re cat bond marks a new first for the ILS market, showing investors willingness to take on risks across much more diverse lines of business. The fact that investors have supported this deal strongly, helping it to upsize by 25% from the $100m it began marketing at to finally offer $125m of notes, but at the same time demanded what they perceived as a reasonable return for the risks, forcing the pricing to the top end of the 7.25% to 8.25% range by close, is encouraging and shows maturity.
The Tradewynd Re cat bond provides AIG with a five-year, $125 million source of fully-collateralized reinsurance protection on an indemnity basis against U.S., Caribbean and Gulf of Mexico named storms, and U.S. and Canadian earthquake risks.
In a press release, AIG explained; “A diversified portfolio of risks is reinsured under the transaction. Commercial lines coverages include commercial property, energy and engineered risks, marine and aviation. Consumer lines coverages include high net worth residential, auto, yacht and fine art. To fund its potential obligations to AIG, Tradewynd Re Ltd. issued a five-year, $125 million single tranche catastrophe bond.”
The Tradewynd Re cat bond includes a feature that is becoming more common in recent cat bonds, a variable reset facility allowing the insurer to adjust the covered layer up or down by moving attachment levels within pre-defined bounds. This gives the sponsor more flexibility in the coverage, while at the same time investors know that the coupon they receive will move with the attachment probabilities.
AIG seems committed to the catastrophe bond market as a source of reinsurance protection, saying; “AIG is a leader in the insurance-linked securities market, sponsoring $2 billion of cat bonds in the last three years. With this transaction, AIG is pleased to further advance capital market participation in insurance risks.”
Given the nature of the underlying book of business and the broad trigger this deal does push the needle for the ILS market a little and we expect to see other sponsors seek to emulate the broad protection it offers to AIG. For more details on the underlying book of business and the cat bonds trigger read our article from last week.
Ratings agency Standard & Poor’s assigned its ‘B+ (sf)’ rating to the $125m Series 2013-1 notes to be issued by Tradewynd Re Ltd.
The Tradewynd Re Ltd. principal at risk variable rate note program and the $125m Series 2013-1 notes issued have both been admitted for listing on the Bermuda Stock Exchange. Capital G/BSX Services Limited acted as listing sponsor.