The second catastrophe bond issuance from Alphabet, Inc., the holding company for tech giant Google and its units, has now been priced and the coupon for the $95 million Phoenician Re Ltd. (Series 2020-2) transaction has been fixed above the mid-point of guidance.
Alphabet’s first catastrophe bond issuance, the Phoenician Re Ltd. (Series 2020-1) transaction priced a couple of weeks ago, securing the tech giant its targeted $237.5 million of California earthquake insurance protection it had sought at the mid-point of pricing.
That first catastrophe bond to benefit Alphabet and its Google operations in California with earthquake protection has now settled.
But, Alphabet quickly returned with this second Phoenician Re catastrophe bond deal, which will sit on top of the first, so extending the collateralized protection it receives from the capital markets further up its earthquake insurance tower.
The second issuance from Phoenician Re Ltd., a Bermuda domiciled special purpose insurer established for Alphabet’s cat bond program, features $95 million of Series 2020-2 notes, that will be sold to cat bond funds and investors and the proceeds used to collateralize reinsurance agreements to provide California earthquake insurance coverage to Alphabet and its Google entities.
Global reinsurance firm Hannover Re sits in the middle and will enter into retrocessional agreements with the SPI Phoenician Re, in turn providing the reinsurance protection to Alphabet’s Hawaii domiciled captive insurer Imi Assurance, who in turn provides the insurance coverage to Alphabet.
So, having remained at their launch size like the first Alphabet cat bond, this $95 million of Phoenician Re 2020-2 Class A cat bond notes will provide Alphabet and subsidiaries with an efficient source of California earthquake reinsurance, across a three-year term, using an indemnity trigger and covering losses on a per-occurrence basis.
As we said, this second Phoenician Re cat bond will sit directly on top of the first, attaching at $1.75 billion of losses (where the 2020-1 notes exhaust their coverage) to Alphabet and covering 95% of a layer up to a $1.85 billion detachment point.
So, being higher in the tower, the Series 2020-2 Class A notes are more risk remote.
At launch, the $95 million of notes which have an initial expected loss of 0.247% were offered to cat bond investors with price guidance in a range from 2.75% to 3%.
We’re now told that the coupon pricing has been fixed at 2.9%, which translates to a multiple of 11.7 times the expected loss.
The first, larger $237.5 million Phoenician Re 2020-1 catastrophe bond has an initial expected loss of 0.33%, so slightly riskier and priced at a 3% coupon, which means a multiple of 9 times the expected loss.
While the new cat bond layer looks like it has a much higher multiple, this really comes down to the minimum returns catastrophe bond and insurance-linked securities (ILS) funds require in order to deliver their investor returns after fees.
There’s always been a near minimum coupon for most perils, no matter how risk remote the arrangement and it seems here Alphabet has found it, at or around the 3% mark.