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Arch targets up to $150m for Claveau Re retro cat bond


Arch Capital Group, the Bermuda headquartered specialty insurance and reinsurance company, is aiming to increase the size of its first retrocession focused property catastrophe bond by as much as half, with the global multi-peril focused Claveau Re Ltd. (Series 2021-1) issuance now targeting up to $150 million of protection for the company.

arch-capital-logoAt the same time, we’re told by sources that the pricing guidance has been narrowed towards the lower-end of the initially marketed range, suggesting yet another strong execution for a property cat bond.

The Claveau Re transaction is particularly interesting as it will cover a very wide range of global perils, so demonstrating the use of the catastrophe bond to access capital markets capacity, in an industry loss trigger form, to secure global retrocessional protection against peak catastrophic perils.

At launch, when we first covered this cat bond almost a fortnight ago, Arch was seeking $100 million of retrocessional catastrophe reinsurance protection from the capital markets, to cover its Arch Reinsurance Ltd. global reinsurance entity, its Irish based Arch Reinsurance DAC underwriting unit and its Lloyd’s managing agency on behalf of Syndicate 1955.

Now, the company is aiming to secure between $125 million and $150 million of cover with this deal, we’re told, so a potential upsizing of a quarter if the investor demand is there.

Given the high-yield nature of the notes, we’d imagine Arch may not have too much trouble procuring the additional $50 million of capacity from the market at this time of high investor demand.

The transaction will provide Arch with industry loss indexed cover against losses from the following perils, across a four-year term: US & Canada named storm and earthquake; US severe thunderstorm; US wildfire; US winter storm; US Caribbean quake; Japan typhoon and earthquake; Canada severe thunderstorm; Canada winter storm; European windstorm; Italy earthquake; Turkey earthquake; Australia earthquake; Australia tropical cyclone; New Zealand quake.

We were told the notes would attach once aggregate industry losses, after applicable franchise deductibles, reached $55 billion and coverage would exhaust at $77.5 billion.

The now up to $150 million tranche of Class A notes being issued by Claveau Re Ltd. will have an initial modeled expected loss of 7.18%.

At first the notes were offered to cat bond investors with coupon price guidance in a range from 17% to 17.75%, but sources have told us that the marketed price guidance range has been tightened towards the lower-end, at 17% to 17.25%.

As we explained when we revealed this transaction, a single-shot US all natural perils industry loss warranty (ILW) with a trigger of $50 billion would be expected to price somewhere around the 18.5% to 20% range at this time. It suggests this global multi-peril, aggregate cover could actually be quite efficient in terms of pricing once secured from the cat bond market.

That keen pricing may help to tempt other global reinsurance players to look to catastrophe bonds for protection they may have previously secured in the ILW market, or through other more traditional retrocession sources.

You can read all about this first Claveau Re Ltd. (Series 2021-1) from Arch and every other catastrophe bond deal in our Artemis Deal Directory.

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