Global reinsurance firm Ariel Re is back in the insurance-linked securities (ILS) market seeking another catastrophe bond to benefit its Lloyd’s of London Syndicate 1910, with a $150 million Titania Re Ltd. (Series 2021-2) retro industry loss deal.
Ariel Re secured its first catastrophe bond cover earlier this year, when it sponsored the $150 million Titania Re 2021-1 issuance, which was also a multi-peril industry loss trigger deal designed to provide retrocessional protection.
This second issuance in a year targets a similar layer of coverage, in terms of attachment, but has a higher expected loss, suggesting Ariel Re’s portfolio has changed and likely assumed more property catastrophe risk, hence how its losses would compare to the industry has changed as the company has grown through 2021.
Syndicate 1910 is the ultimate ceding company, which is the underwriting vehicle that private equity backed, expansive reinsurer Ariel Re principally uses for its global reinsurance business.
Bermuda registered special purpose insurer (SPI) Titania Re Ltd. will seek to issue a single tranche of notes, that will be sold to investors and the proceeds used to provide Ariel Re with a multi-year source of retro reinsurance to cover certain losses from U.S. 50 state, Puerto Rico, U.S. Virgin Islands, D.C. and Canada named storms and earthquakes.
The coverage will run across a three year period, like the 2021-1 Titania Re cat bond deal.
So the 2021-2 cat bond will cover Ariel Re’s Syndicate 1910 through to December 2024 and also like the first cat bond is structured using an industry loss trigger, providing annual aggregate retro protection.
The single tranche of Series 2021-2 Class A notes would attach at an index loss level of $1.05 billion and covering losses up to $1.383 billion, after a $45 million per-event deductible, we’re told.
We understand that the $150 million of Series 2021-2 Class A notes will have an initial expected loss of 3.32% and have been offered to investors with coupon price guidance in a range from 6.75% to 7.25%.
For comparison, the 2021-1 cat bond had, which also attached around $1 billion with a $45 million deductible per-event, had an expected loss at issuance of 1.98% and paid investors a 4.5% coupon.
So this new cat bond appears quite aligned and perhaps designed to fill-out more of Ariel Re’s retro reinsurance tower at a time when the catastrophe bond market is able to offer good value coverage, for these annual aggregate retro layers.
It’s very encouraging to see Ariel Re back in the catastrophe bond market for a second issuance in the same year as its first cat bond deal.
The cat bond market offers real value and capacity to reinsurers seeking industry loss based protection at this time, even on an aggregate basis.
While the retrocession market may be challenging at the renewals, there is a clear opportunity for reinsurers to secure well-priced aggregate retro in the capital markets using catastrophe bonds, something Ariel Re has clearly noted.