The latest catastrophe bond from Allianz Risk Transfer (ART), Blue Halo Re Ltd. (Series 2022-1), appears to have been well-received by investors, as Artemis has learned that the issuance is set to upsize by 25% to $125 million, while the price guidance has been lowered for both tranches of notes.
Allianz Risk Transfer (ART), the specialist and alternative risk focused unit of the Allianz global insurance and reinsurance group, returned to the catastrophe bond market with a new Blue Halo Re transaction in late January.
The Blue Halo Re 2022-1 catastrophe bond saw the company seeking out at least $100 million of retrocessional reinsurance protection against losses from U.S. named storms and earthquakes, structured on an annual aggregate and industry-loss trigger basis.
We assume the coverage from this new Blue Halo Re cat bond is also set to protect some of the fronted risks that the carrier assumes from insurance-linked securities (ILS) funds, such as Nephila Capital, as with previous deals.
In previous Blue Halo Re cat bond transactions, Allianz Risk Transfer acted as the ceding reinsurer through its Bermuda operation, but we understood from sources that the risk transfer was supportive of the re/insurers work with the largest ILS fund manager Nephila Capital.
The rationale behind these Blue Halo Re cat bonds has been to cover risks that are assumed and retained through the fronting work Allianz undertakes with ILS fund manager Nephila Capital and others it is working with.
In our coverage of the deal in late January we explained that it’s likely Allianz ART is looking to the catastrophe bond market for a competitively priced slice of aggregate retro reinsurance protection.
Recent cat bonds have been delivering this type of aggregate cover, on an industry index trigger basis, at a reasonable cost of coverage for issuers and with capacity often seen as more readily available than the traditional retro market.
The execution of this latest catastrophe bond seems to reflect these currently attractive cat bond issuance conditions.
To recap on the deal specifics, special purpose insurer (SPI) Blue Halo Re Ltd. aims to issue two tranches of Series 2022-1 notes and was targeting at least $100 million of retro protection from the deal at its launch to investors.
The sale of the notes to ILS investors will yield capital that will be used to collateralise two retrocessional reinsurance agreements between the issuer and Allianz Risk Transfer (Bermuda), the ceding reinsurer.
Both tranches of notes are exposed to U.S. named storm and earthquake events, across all hurricane and quake exposed states and territories including Puerto Rico, over a three-year term and on an annual aggregate and industry loss index trigger basis.
At launch, a Series 2022-1 Class A tranche of notes were targeted at $50 million in size, but we’ve learned this tranche is now $60 million thanks to investor appetite.
The Class A notes feature a franchise deductible per-event and have an initial expected loss of 4.91% at the base case. The notes were offered to cat bond investors with price guidance in a range from 10% to 11% at first, but we now understand that this has narrowed and fallen to 9.75% to 10%.
A Series 2022-1 Class B tranche of notes that are a little riskier were also targeting $50 million of cover for Allianz ART, but we’re ow told these have also upsized to $65 million.
The Class B notes also feature a franchise deductible per-event, with an initial expected loss of 7.02% at the base case. This tranche of notes were initially offered to cat bond investors with price guidance in a range from 15.5% to 16.5%, but again we’ve learned that the price guidance has dropped and tightened to 15.25% to 15.5%.
So, it now looks as if the Blue Halo Re 2022-1 catastrophe bond will upsize by 25% to provide $125 million of aggregate catastrophe retro protection, while the cat bond notes look set to price at the bottom of initial guidance, or perhaps even below.
The aggregate focus of this cat bond issuance is likely due to the higher costs of that protection in the traditional retro reinsurance marketplace, so this looks like a strong result for Allianz ART and a clear reflection of still attractive cat bond market conditions for aggregate placements.