Avatar returns with $65m Casablanca Re cat bond issued from Singapore

Florida focused insurer Avatar Property and Casualty Insurance Company has returned to the catastrophe bond market for what will be its second ever issuance, with a currently $65 million Casablanca Re Pte. Ltd. (Series 2020-1) transaction to provide named storm reinsurance protection.

The Casablanca Re Pte. Ltd. (Series 2020-1) catastrophe bond will provide at least a partial renewal of the soon to mature $100 million Casablanca Re Ltd. (Series 2017-1) transaction that was Avatar’s first foray in the capital markets, so there is room for the deal to upsize should cat bond investor appetites allow.

For its new catastrophe bond coverage, sources told us that Avatar Property and Casualty Insurance Company has opted to switch issuance domiciles to Singapore, with a new special purpose reinsurance vehicle named Casablanca Re Pte. Ltd. established there.

Casablanca Re Pte. Ltd. will seek to issue two tranches of Series 2020-1 notes, currently targeting at least $65 million across the pair, with the notes to be sold to cat bond funds and investors and the proceeds used to collateralise reinsurance agreements between the issuing vehicle and sponsor Avatar.

Both tranches of notes will provide Avatar with reinsurance protection against losses from Florida named storms (so tropical storms and hurricanes) across a three-year term.

The area of coverage can be expanded at an annual reset, should Avatar have expanded and want to see coverage in a range of other hurricane exposed U.S. states.

The reinsurance protection will be on an indemnity trigger, cascading and per-occurrence basis, we understand, with the notes exposed to a single larger event, or dropping down for a second and subsequent event.

A Series 2020-1 Class A tranche of notes to be issued by Casablanca Re Pte. are currently sized at $40 million and have an initial expected loss of 1.12%. These notes are being offered to investors with coupon price guidance of 6% to 6.5% we understand.

A Class B tranche of notes are currently sized at $25 million and have an initial expected loss of 2.35%. This tranche are being offered to cat bond investors with price guidance in a range from 8% to 8.5%.

Both tranches attach at $17.5 million, which is the size of sub-layers in the reinsurance tower, but being cascading it would take a named storm loss event that reached at least $157.1 million up Avatar’s tower to trigger them on a first-event basis, or a $68.8 million second or subsequent event, we’ve been told.

It’s good to see Avatar returning to the catastrophe bond market with these new layers of its reinsurance program, as it looks to renew capital markets support for its tower.

On a multiple of expected loss basis, both are set to pay investors a decent increase in return compared to the maturing 2017 cat bond deal.

We’ll update you as this new Casablanca Re Pte. Ltd. (Series 2020-1) catastrophe bond from Avatar Property and Casualty Insurance comes to market and you can read about every cat bond transaction in the extensive Artemis Deal Directory.