Arch’s Claveau Re retro cat bond priced at upsized $150m

Arch Capital Group has now secured the targeted 50% upsize to $150 million of protection from its first retrocession focused property catastrophe bond, as the global multi-peril focused Claveau Re Ltd. (Series 2021-1) cat bond issuance has now been priced.

The Bermuda headquartered specialty insurance and reinsurance company has secured this larger slice of retro reinsurance protection with pricing finalised below the initial guidance mid-point.

This Claveau Re catastrophe bond transaction is the latest to push the global, multi-peril, retrocession boundaries, in providing broad coverage for its sponsor.

It demonstrates 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 and will likely be a deal other global reinsurers will have watched closely, as this type of protection and the pricing of it may be attractive to others.

At launch, when we first covered this cat bond just over a fortnight ago, Arch was looking to secure $100 million of aggregate retrocessional catastrophe reinsurance protection from the capital markets with the deal.

The protection will 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, against impacts from major industry loss events.

The transaction will afford Arch  industry loss indexed reinsurance protection 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.

The notes will attach once aggregate industry losses, after applicable franchise deductibles, reach $55 billion, while coverage will exhaust at an industry loss index level of $77.5 billion.

Thanks to strong investor demand in the catastrophe bond market at this time, Arch’s target for the deal was lifted to between $125 million and $150 million of retro coverage.

Now, sources have confirmed that the upper-end of the higher target has been secured, with the Claveau Re cat bond issuance growing 50% to $150 million.

So, the Claveau Re Ltd. will now issue a $150 million tranche of Class A notes, with the notes having an initial modeled expected loss of 7.18%.

The notes were first offered to cat bond investors with coupon price guidance in a range from 17% to 17.75%, but the guidance was subsequently tightened towards the lower-end, at 17% to 17.25%.

Now, we’re told the pricing has been fixed at the higher-end of the reduced guidance, at a coupon of 17.25%.

It’s a lower price drop than most other cat bonds issued in the last few months, at just under 1% from the initial guidance mid-point. But, given the higher risk nature of the notes and the novel global, multi-peril retro protection they provide, this isn’t so surprising.

The notes coupon offers investors a multiple of 2.4 times the initial expected loss, which is aligned with other higher-risk transactions issued this year.

We still believe that the way this new cat bond deal from Arch has executed could draw other large, global reinsurance firms to look to catastrophe bonds for this type of multi-peril, indexed retrocessional protection.

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