Investment giant Blackstone has returned to the catastrophe bond market for the second time, seeking a $250 million or greater source of multi-peril and indemnity based catastrophe insurance protection for risks held by its real estate funds, from this Wrigley Re Ltd. (Series 2023-1) cat bond deal.
Blackstone first tapped the cat bond market for protection back in 2021, when it secured $50 million of parametric California earthquake protection for its real estate strategies with a $50 million Wrigley Re Ltd. (Series 2021-1) transaction which runs to the end of June 2024.
These Wrigley Re cat bonds provide insurance both to Blackstone and the real estate investment portfolios it manages, offering an efficient way to secure complementary and alternative risk capital from the insurance-linked securities (ILS) market.
For its second Wrigley Re cat bond, Blackstone has shifted away from the parametric trigger its first deal used, and is now seeking indemnity based protection.
In addition, the range of perils covered is expanding with this second Blackstone cat bond, as too is the covered area, we’re told.
Wrigley Re Ltd. will issue two tranches of Series 2023-1 notes and these will be sold to collateralize retrocessional reinsurance agreements with global reinsurer Hannover Re, who fronts the capital markets for Blackstone, then passing on the coverage through reinsurance agreements to the Gryphon Mutual Property Americas IC real estate captive insurer of the investment giant, which in turn passes the coverage on to funds managed by Blackstone, we understand.
The tranches of notes will both provide Blackstone with three years of indemnity based catastrophe insurance protection, running to July 28th 2026, but there are differences in the perils and covered areas, as well as the forms of coverage.
The Class A tranche of notes are targeted at $100 million in size and will provide Blackstone with per-occurrence named storm protection across the US and Canada, as well as annual aggregate earthquake protection for all US states except California and Canada, we’re told.
The Class B tranche of notes are targeted at $150 million in size and will provide Blackstone with annual aggregate California only earthquake protection, we understand.
The Class A tranche would attach at $350 million of losses and exhaust coverage at $650 million, with an initial attachment probability of 0.95%, an initial expected loss of 0.56% and are being offered with spread price guidance in a range from 6.5% to 7%, sources said.
While the Class B tranche would attach at $750 million of losses and exhaust coverage at $900 million, with an initial attachment probability of 1.2%, an initial expected loss of 1.03% and are being offered with spread price guidance in a range from 7% to 7.5%, we are told.
This second Wrigley Re catastrophe bond is an interesting structure, combining different perils, regions and forms of coverage and shows Blackstone’s increasing comfort level with the cat bond market as a source of efficient disaster insurance for its real estate investment business.
Encouragingly, the deal is larger, the coverage more expansive and the shift to an indemnity trigger will likely mean the cat bond coverage more closely dovetails with Blackstone’s traditional insurance protection as well, which sets a strong example for how assets at risk of catastrophe losses can be protected using the capital markets.
Investment managers with significant exposure to real estate assets can benefit from insurance protection against peak disaster losses and Blackstone is clearly demonstrating an appetite to increase its coverage using these Wrigley Re catastrophe bonds.