Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Atlas Re VII cat bond closes at upper size, lower end of pricing


Here’s a quick update on the latest multi-peril catastrophe bond from SCOR, Atlas Reinsurance VII Limited, which we wrote about yesterday to reveal the doubling in size and lowering of price guidance. The transaction priced late yesterday and in the end SCOR took the maximum size of the deal while pricing came in right at the bottom of the expected range, which was below the originally marketed range, making this a very effective source of retrocession for the French reinsurer.

Atlas Reinsurance VII is a three-year cat bond offering a source of fully-collateralized multi-peril retrocessional reinsurance for certain of SCOR’s  U.S. hurricane, U.S. earthquake and European windstorm risks. Hurricane and earthquake cover is on an annual aggregate basis using a PCS county weighted industry loss index. European windstorm cover is on a per-occurrence basis using a Cresta zone weighted industry loss index from PERILS AG.

On the size of the deal, the Class A (hurricane/earthquake) tranche started at $50m, grew to between $50m to $60m and at pricing yesterday finished at the upper end at $60m. The Class B European windstorm tranche started at €50m tranche, grew to €120m to €130m in size and finished at the upper end again at €130m. This makes the total deal size approximately $228m when the Euro tranche is converted.

One of our contacts told us that this deal was significantly over subscribed and SCOR could have taken the deal size much higher if they had needed or wanted the additional cover. That demand which wasn’t satisfied bodes well for other cat bond issuers in the coming weeks.

On pricing of the deal, the Class A notes had an original price guidance range of 8.25% to 9.00%, that dropped before it priced to a range of 8.00% to 8.25% and it actually priced at the bottom end at 8.00%. The Class B notes began marketing between 3.65% to 4.15%, expectation reduced to the bottom end of 3.65% before pricing was finalised and indeed the notes priced at the 3.65% mark.

We believe that the Class B tranche is now the lowest priced European windstorm tranche of cat bond notes in terms of coupon, coming in even lower than the recent Eurus III Ltd. deal which priced at 3.75%. However the multiple of expected loss for the Atlas Re VII Class B tranche is 2.60 times versus a low of 2.36 times for Eurus III, making that risk effectively cheaper. Both these deals show that demand is high for cat bond risk and European windstorm risk can be transferred at particularly cheap prices into the capital markets. One of our contacts suggested that this could go even lower given the lack of major European windstorms in recent years, suggesting that multiples could come down below 2X expected losses in future (if no major storms impact Europe).

So for SCOR this has been a very successful cat bond deal with them seemingly achieving as much cover as they wanted at the time for a cheaper price than it was originally thought the transaction would complete for. Atlas Reinsurance VII Limited has been another demonstration of demand being greater than supply and this looks promising for issuance through the remainder of 2012.

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