The Akibare Re Ltd. (Series 2018-1) catastrophe bond transaction looks set to increase in size thanks to investor demand, with the targeted issuance size rising to $320 million of coverage for the two sponsoring ceding insurers from MS&AD Insurance Group Holdings.
This latest Akibare Re cat bond transaction launched to the market at the beginning of March, with Mitsui Sumitomo Insurance Co. Ltd. and fellow MS&AD stable insurer Aioi Nissay Dowa Insurance Co., Ltd. seeking a $225 million source of collateralized multi-peril reinsurance protection from the capital markets.
We’re told that thanks to strong investor demand the transaction is now targeting up to $320 million of coverage for the insurers, while at the same time the price guidance has fallen for both of the tranches of notes being issued.
The Akibare Re 2018-1 cat bond issuance features two tranches of notes that will be sold to investors with the proceeds used to fully-collateraliz underlying reinsurance agreements that will provide their protection on a per-occurrence and indemnity trigger basis across four-year terms, with one tranche of notes dedicated to each of the ceding insurers.
The first tranche, which launched as a $150 million layer of Series 2018-1 Class A notes, will benefit only Mitsui Sumitomo Insurance Co. Ltd. with reinsurance protection against losses from typhoons, floods and earthquake related fire events across Japan.
This tranche, with an expected loss of 0.73%, is now targeting between $200 million and $220 million of coverage for Mitsui Sumitomo and at the same time as upsizing the initial price guidance of 2% to 2.5% has been slashed to 1.9% to 2%, we understand.
The second tranche began as a $75 million Class B layer, designed to benefit only Aioi Nissay Dowa Insurance Co., Ltd. with reinsurance protection against losses from just typhoons and floods in Japan.
This tranche, which has an expected loss of 0.99%, is now targeting $100 million of coverage for Aioi Nissay Dowa Insurance and the initial coupon price guidance of 2% to 2.5% has again been slashed down to 1.9% to 2%.
So both of the tranches of cat bond notes being issued by Akibare Re in this Series 2018-1 deal have seen their size increase while the pricing guidance has fallen to the bottom-end or below, thanks to strong investor demand.
Appetite persists among catastrophe bond investors even for these lower coupon Japanese risk issuances, which bodes well for any issuers bringing higher coupon offerings in advance of the U.S. wind season, as these cat bonds should be of particular interest to investors with return targets to meet.
This Akibare Re 2018-1 cat bond also demonstrates an efficient way for two ceding insurers to secure capital markets coverage from a single issuance, taking a tranche of coverage each.
This Akibare Re 2018 cat bond will be priced this week and complete before the end of the month, so falling into first-quarter 2018 cat bond issuance which already stands at $2.49 billion, according to Artemis data.