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AIG’s Validus to renew Tailwind Re cat bond aggregate retrocession


Validus, the Bermuda headquartered reinsurance underwriting arm of AIG, has returned to renew its Tailwind catastrophe bond protection, with a $275 million or larger Tailwind Re Ltd. (Series 2022-1) transaction in the market, through which it is seeking a source of aggregate retrocession.

validus-re-logoValidus last sponsored a catastrophe bond in 2017, a $400 million Tailwind Re Ltd. (Series 2017-1) cat bond that was the reinsurers’ first ever full cat bond issuance.

That transaction matures in early January, so this Tailwind Re 2022-1 cat bond looks like a renewal.

However, the 2022 Tailwind Re cat bond has a good chance of being as big, or perhaps larger, as it sees the coverage split across four tranches, one of which is as yet unsized, compared to the maturing 2017 deal that provided annual aggregate retro reinsurance across three tranches of notes.

Tailwind Re Ltd., Validus’ Bermuda domiciled special purpose insurer (SPI), will seek to issue four tranches of notes that will be sold to cat bond investors and the proceeds used to collateralize retro reinsurance agreements between the issuer and Validus Holdings.

We understand the retrocessional reinsurance cover from this cat bond will extend across Validus Re, Talbot Underwriting and its syndicate 1183 at Lloyd’s of London.

The Tailwind Re 2022-1 cat bond will provide Validus and its covered subsidiaries with a capital market-backed source of collateralized retrocession covering U.S., Canada, Puerto Rico and U.S. Virgin Islands named storm and earthquake risks.

The reinsurance protection from the Tailwind Re 2022-1 cat bond will be structured on an annual aggregate basis, using a weighted PCS industry loss index trigger and with coverage set to run across three years to the end of 2024.

That’s shorter than the four years of protection the Tailwind Re 2017-1 cat bond provided.

Four tranches of Series 2022-1 cat bond notes will be issued by Tailwind Re, all offering different levels of risk and return for investors, while covering the same perils and territories on an industry loss and annual aggregate basis, we understand.

A $100 million Class A tranche of notes is the lowest risk layer of this cat bond, having an initial attachment probability of 3.92%, an initial expected loss of 3.63% and being offered to investors with price guidance of 6.75% to 7.5%.

An also $100 million Class B layer of notes is the next riskiest, having an initial attachment probability of 5.24%, an initial expected loss of 4.5% and being offered to investors with price guidance of 8.75% to 9.5%.

A $75 million tranche of Class C notes sit under those, with an initial attachment probability of 6.4%, an initial expected loss of 5.82% and being offered to investors with price guidance of 11.75% to 12.75%.

Finally, an as yet unsized Class D tranche of notes sit lowest down, so are the riskiest tranche, having an initial attachment probability of 7.3%, an initial expected loss of 6.84% and being offered to investors with price guidance of 15.25% to 16.25%

All four tranches of notes sit directly on top of one another and feature an index deductible that needs to be surpassed for catastrophe events to qualify as covered losses.

It’s a sensible way to tier the capital markets coverage through Validus’ retro reinsurance tower and given the challenges that are evident in the retro market at this renewal season, Validus may find this a more efficient way to secure aggregate cover, as capacity for that in UNL form has contracted significantly.

So it will be interesting to see how this cat bond executes, as it will be another example of the cat bond market’s ability to fill some retro coverage gaps, on an index basis.

A final point of note, we’re told that issuance of this latest catastrophe bond from Validus won’t actually be completed until early January, making it the first issuance of 2022 and meaning it will not fall into the record issuance numbers from 2021.

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.

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