AXA XL’s new catastrophe bond is the first ever to cover US terrorism risk

We reported last month that AXA XL had secured $67.5 million of retrocessional protection from a new Galileo Re Ltd. (Series 2026-1) catastrophe bond issuance. We’ve now learned this deal was particularly innovative and set some new market firsts, including becoming the first US terrorism cat bond ever.

We knew that AXA XL, the global specialty insurance and reinsurance arm of the AXA Group, had secured the $67.5 million of retrocessional reinsurance protection on an industry-loss trigger basis, with the coverage set to run for an almost two year term, with maturity due in early June 2028.

But we assumed this would be a typical natural catastrophe cover for the company, as its previous Galileo Re cat bonds have all been.

We’ve now learned that the Galileo Re 2026-1 catastrophe bond features a particularly innovative structure, setting a number of firsts for the market.

GC Securities, the investment banking and insurance-linked securities specialist arm of reinsurance broker Guy Carpenter, was the sole structuring agent and bookrunner, so designed the innovative structure for AXA XL.

We also now know this was issued under Rule 4(a)(2) of the US Securities Act, as a private placement. Although we suspect the notes may have been made 144a eligible on settlement, which is often the case.

But most notable is the fact the $67.5 million of notes provide a shared single limit of retro protection for AXA XL, across both US named storm risks and US terrorism risks.

As a result, this Galileo Re Series 2026-1 catastrophe bond is the first ever to provide a sponsor with protection against terrorism events in the United States.

Regular readers will know that terrorism risks are seen in the catastrophe bond market, although remain a small component of it.

Most prominent are the four Baltic PCC Limited catastrophe bonds issued for the UK terrorism reinsurer Pool Re, as well as the Athéna I Reinsurance DAC cat bond for the French terrorism risk pool Gareat.

The only place we’ve seen elements of terrorism exposure in cat bonds covering the US has been with a number of mortality cat bonds over the years, that included cover for deaths occurring due to terror events in the country.

One other notable cat bond that included elements of terrorism risk was the Golden Goal Finance Ltd. event cancellation cat bond for FIFA that was issued in 2003 and included cover for terror events in Germany where the World Cup was held that year.

This Galileo Re 2026-1 catastrophe bond is particularly notable then as the first to ever cover US terrorism event risk directly, covering more than just the mortality exposure, while it is also the first pure terrorism cat bond anywhere to cover the risk on an industry-loss trigger basis, all the rest having used indemnity triggers.

Which brings us onto another notable point with this cat bond, it is the first to utilise PCS’ Global Terror Index, as the industry-loss event data provider and reporting agent.

PCS launched that Global Terror Index product a few years ago, since expanding it to include SRCC events. While it has been used in some industry-loss warranty (ILW) arrangements we understand, it had yet to be used in a catastrophe bond until now.

It’s worth also noting that PCS’ Global Terror Index has a TRIA qualifier, in that for a loss to be designated it must be certified as a terrorism event under the Terrorism Risk Insurance Act (TRIA).

TRIA is due to expire in 2027, before this cat bond runs its course and while an act to extend it to 2034 has now passed the US House of Representatives, it still needs to move further through the government approvals before that happens.

In addition, this Galileo Re Series 2026-1 for AXA XL combined US hurricane risks with US terrorism risks under its single $67.5 million limit.

The US hurricane was modelled by Verisk using its AIR risk model, while the US terrorism risk was modelled by Moody’s using its RMS risk model.

That’s also notable as a rare case of two different expert risk modelling firms collaborating on a cat bonds single limit of coverage.

It was also the first use of the RMS terrorism risk model for US exposure within a cat bond issuance as well.

Finally, we’ve also learned that the $67.5 million of Galileo Re Series 2026-1 catastrophe bond notes had an initial combined expected loss of 2.16%, while we had previously reported that it priced to pay investors a spread of 6%.

This is a notable transaction, for all of the reasons above, most notably in being the first time a catastrophe bond sponsor has secured US terrorism event protection from the capital markets in this format.

You can read all about AXA XL’s new Galileo Re Ltd. (Series 2026-1) transaction to our Deal Directory, where you can analyse details of almost every catastrophe bond ever issued.