Validus, the Bermuda headquartered reinsurance underwriting arm of AIG, has now secured $400 million of retrocession from its latest catastrophe bond, as the Tailwind Re Ltd. (Series 2022-1) renewal transaction failed to reach the upper-end target, but all four tranches of notes were priced at attractive coupon levels.
Validus returned to the catastrophe bond market earlier in December, targeting at least $275 million of collateralized aggregate retrocessional reinsurance protection with a renewal of its Tailwind Re issuance.
A week ago, we reported that Validus’ target for its second Tailwind Re catastrophe bond had increased, with the top-end goal being to secure $425 million of aggregate retro from the Tailwind Re 2022-1 deal.
Sources have told us that the top-end of that target has been missed, although we understand this was most likely due to Validus’ desire to secure its new cat bond coverage at the best possible pricing, which the reinsurer has now successfully achieved.
At $400 million, this Tailwind Re 2022-1 cat bond now provides a straight renewal for the $400 million Tailwind Re Ltd. (Series 2017-1) cat bond that matures in early January 2022 and was Validus’ first ever full cat bond issuance.
At completion in early January 2022, Tailwind Re Ltd. will sell four tranches of Series 2022-1 notes to cat bond investors and the proceeds will be used to collateralize aggregate retro reinsurance agreements between the issuer and Validus Holdings, with this protection extending across underwriting vehicles Validus Re, Talbot Underwriting and its syndicate 1183 at Lloyd’s of London.
The collateralized aggregate retro reinsurance will cover losses from U.S., Canada, Puerto Rico and U.S. Virgin Islands named storm and earthquake risks, on an annual aggregate basis, using a weighted PCS industry loss index trigger and with coverage running for three years to the end of 2024.
It appears that Validus has targeted replacing its maturing cat bond coverage at the best possible pricing, with this renewal issuance.
A target that the reinsurer has seemingly achieved across all four tranches of notes and layers of protection, as the coupons have all been fixed at the low-end of guidance, with one settling at the low-end of already reduced guidance.
A $100 million Class A tranche of notes, the lowest risk layer of this cat bond, have an initial attachment probability of 3.92%, an initial expected loss of 3.63% and were initially offered to investors with price guidance of 6.75% to 7.5%.
The Class A tranche remained at $100 million in size, while pricing has now been finalised at the bottom-end of guidance, at 6.75%.
A $150 million Class B layer of notes, which upsized from $100 million, are the next riskiest, with an initial attachment probability of 5.24% and an initial expected loss of 4.5%. The Class B notes were first offered to investors with price guidance of 8.75% to 9.5%, and at final pricing this was fixed at the low-end of 8.75%.
A $100 million tranche of Class C notes, which had upsized from $75 million, have an initial attachment probability of 6.4% and an initial expected loss of 5.82%. The Class C notes were first offered to investors with price guidance of 11.75% to 12.75%, but this was also finalised at the low-end of 11.75%.
Finally, the Class D tranche of notes that began marketing without a size, but then aimed for between $50 million and $75 million of coverage, have now also been finalised, but with only the $50 million of coverage secured.
Having an initial attachment probability of 7.3% and initial expected loss of 6.84%, the Class D notes were first offered to investors with price guidance of 15.25% to 16.25%, which subsequently fell to a new tighter range of 14.75% to 15.25% and we’re now told pricing has been finalised for the Class D tranche at the low-end of 14.75%.
So, Validus’ return to the cat bond market has seemingly been well-received by catastrophe bond investors, supporting the renewal of the reinsurers’ expiring catastrophe bond coverage at attractive pricing levels.
This will become the first issuance of 2022, when it settles in early January, providing a solid $400 million base for annual issuance to begin from.
You can read all about this new Tailwind Re Ltd. (Series 2022-1) cat bond transaction from AIG’s reinsurer subsidiary Validus, as well as every other catastrophe bond issuance in our Artemis Deal Directory.