Allianz’s upsized $125m Blue Halo cat bond priced below guidance

Allianz Risk Transfer’s (ART) latest catastrophe bond, the Blue Halo Re Ltd. (Series 2022-1) issuance, has now been achieved its upsized $125 million target, while both tranches of notes have priced below guidance in a vote of confidence for the sponsor and the subject business, which is suspected to include risks fronted for ILS manager Nephila Capital.

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.

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.

With an original target of just $100 million of cover, this aggregate retro catastrophe bond was well-received by cat bond investors and as a result it was successfully upsized to $125 million, as we explained in our article last week.

Allianz ART has looked to the catastrophe bond market for a competitively priced slice of aggregate retro reinsurance protection.

The cat bond market has been delivering this type of aggregate cover, on an industry index trigger basis, at a reasonably efficient cost of coverage for issuers, while capacity is often seen as more readily available than in the traditional retro market.

With this latest aggregate retro catastrophe bond upsizing at keen pricing, it seems to reflect these currently attractive cat bond issuance conditions.

Deal specifics can be seen in our Directory entry here, but the now $125 million Blue Halo Re 2022-1 cat bond deal will provide Allianz ART with cover for U.S. named storm and earthquake events, over a three-year term, on an annual aggregate and industry loss index trigger basis.

The deal was launched to investors with a $50 million Series 2022-1 Class A tranche of notes, which was upsized to $60 million in size 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 Class A notes were first offered to cat bond investors with price guidance in a range from 10% to 11%, a range which was then  narrowed and fell to 9.75% to 10%, but has now been fixed at the low-end of 9.75%, sources have told us, so below the initial guidance range.

The Series 2022-1 Class B tranche of notes, which are a little riskier, also launched at $50 million in size, but were successfully 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.

The Class B notes were at first offered to cat bond investors with price guidance in a range from 15.5% to 16.5%, which subsequently dropped and was tightened to 15.25% to 15.5% and we’re now told that the Class B notes priced at 15.25%, so again below the original guidance.

As we said last week, this looks like a strong result for Allianz ART, thanks to an upsized and keenly priced execution for this new catastrophe bond.

We suspect this is both a clear reflection of the still very attractive cat bond market conditions for aggregate placements, which retrocession buyers will undoubtedly be watching closely.

But, it’s also likely due to the quality and maturity of the portfolio of risks being covered here, with Allianz’s ART unit having worked closely with ILS manager Nephila Capital for some years now, which will have instilled confidence in cat bond market investors, who of course know the pair well.

You can read all about this new Blue Halo Re Ltd. (Series 2022-1) catastrophe bond and more than 800 cat bond transactions in our extensive Artemis Deal Directory.