Beazley, the London headquartered specialty insurance and reinsurance underwriter, is sponsoring its first ever Rule 144A property catastrophe bond, seeking $100 million or more in protection through a Fuchsia 2023-1 issuance using the Lloyd’s owned ILS structure London Bridge 2 PCC Limited.
This new cat bond is notable for a number of reasons, being Beazley’s debut 144A natural catastrophe bond, for coming while Beazley is also in the market for its first cyber cat bond the PoleStar Re 2024-1 deal we covered last week, for being a rare UK domiciled catastrophe bond issuance, and perhaps most notable for being the first excess-of-loss cat bond deal to use the London Bridge 2 PCC structure.
A Fuchsia cat bond from Beazley has been something we’ve been anticipating for a few years now.
Back in 2019, Beazley registered Fuchsia Capital PCC Ltd., a UK domiciled insurance-linked securities (ILS) vehicle that never got used.
Beazley then registered a Bermuda based structure in 2022 named Fuchsia Re Ltd. that was expected to be licensed as a special purpose insurer (SPI), but no cat bond deal was ever forthcoming from it either.
Now, we’re told by sources that Beazley’s first ever property cat bond will be named Fuchsia, the company brand colour, but it has opted to use Lloyd’s insurance-linked securities (ILS) structure as the issuer, giving London Bridge 2 PCC its first cat bond issuance in the process.
That’s a win for Lloyd’s and the UK’s ILS ambitions, while for Beazley no doubt there was a benefit to choosing to support the London Bridge 2 PCC ILS mission.
We understand that London Bridge 2 PCC Limited will issue a single, currently targeted at $100 million, tranche of Series 2023-1 notes via a protected cell named Fuchsia 2023-1.
The Fuchsia 2023-1 Series 2023-1 notes will be sold to cat bond investors and the proceeds used to collateralize a reinsurance agreement between the cell of London Bridge 2 PCC and Beazley, to provide it with a source of multi-year international property catastrophe reinsurance protection.
We are told that the protection will cover Beazley against losses from named storm and earthquake events affecting the United States, Canada and certain parts of the Caribbean.
This broad reinsurance coverage against the two peak peril catastrophe loss events, will protect Beazley’s core underwriting entities, including its syndicates at Lloyd’s, its US E&S insurer and Irish insurer, sources said.
It seems notable that the first cat bond from the Lloyd’s ILS vehicle London Bridge 2 PCC will provide reinsurance to entities outside of the Lloyd’s market as well, something other potential sponsors that might prefer a UK domiciled ILS issuance could find an attractive option now, given the vehicle is established and ready to go and means they do not need to set up their own issuer.
The $100 million or more in coverage from the Fuchsia 2023-1 cat bond notes will provide Beazley with reinsurance across a just over three year term, running from January 2024 to the end of March 2027, we’re told.
The reinsurance coverage from these notes, which will be indemnity and per-occurrence in nature, would attach at $500 million of losses to Beazley and cover a share up to exhaustion at $800 million.
We understand that gives the Fuchsia 2023-1 cat bond notes an initial attachment probability of 3.99%, an initial expected loss of 2.46% and the notes are being marketed to investors with spread guidance in a range from 9% to 10%.
It’s good to see Beazley finally entering the property catastrophe bond market, even though the company perhaps surprisingly made its debut 144A cat bond market entry with a cyber cat bond deal.
Beazley’s cat bond market entry will be a strong signal for the cat bond market, to potential sponsors, in being an efficient source of reinsurance that is cost comparable to the traditional market.
While also signalling that Lloyd’s London Bridge 2 PCC ILS structure is now open for cat bond business and can provide that protection more broadly than just to Lloyd’s syndicates as well.
You can read all about this London Bridge 2 PCC Limited (Fuchsia 2023-1) catastrophe bond transaction in our Deal Directory, where you can analyse details of almost every cat bond ever issued.