The new catastrophe bond issuance for ARX Holding, the Progressive-owned parent of American Strategic Insurance Group, now looks as if it could shrink in size, with one layer perhaps not being issued at all, while the price guidance for the remaining Bonanza Re Ltd. (Series 2021-1) cat bond notes has also risen.
When this cat bond was launched to investors at the start of December, it featured one tranche of notes sized to provide $100 million of reinsurance for American Strategic’s insurance entities, as well as a second still unsized tranche of notes.
We’re now told that the unsized tranche may not be issued at all, which was the much riskier of the two.
Both tranches of notes were seeking annual aggregate, multi-peril, indemnity reinsurance protection for sponsor American Strategic.
The remaining Series 2021-1 Class B tranche of notes will provide American Strategic with a one-year source of annual aggregate and multi-peril reinsurance protection, with a risk period running the duration of 2022, and covering the sponsor against losses from U.S. named storms, severe thunderstorms, winter storms, wildfires and earthquakes, on an indemnity trigger basis.
At launch, Bonanza Re Ltd. was aiming to issue $100 million of the Class B notes, which would attach at $650 million of losses, spanning a $100 million layer of the reinsurance tower.
Now, we’re told the target size for this Class B tranche may shrink slightly, with between $75 million and $100 million now hoped to be issued.
These Class B notes will have an initial expected loss of 0.32% and were first offered to investors with pricing in a range of 89% to 88% of par, which equates to a roughly 11% to 12% coupon.
We’re now told the pricing has been fixed at 87% of par, which is effectively a price increase as the coupon equivalent would now be 13%.
The riskier and at-first unsized Class C tranche of notes, that would have attached at $575 million of losses and had an initial expected loss of 1.28%, are now not being issued, our sources said.
This layer was a far riskier annual aggregate tranche of risk and given the challenges in placing aggregate covers in the market right now, it’s perhaps no surprise and we imagine this is getting placed privately, as reinsurance (traditional or collateralized), instead.
So it looks like American Strategic could still secure up to $100 million of aggregate reinsurance to cover it over the next year, which would still be a good result in the currently disrupted market for that kind of coverage.
Having seen pricing rise for both Swiss Re’s and Hannover Re’s latest catastrophe bonds this week, once again the cat bond market is giving off signals that investors will not continue to tighten its prices, especially not at a time when reinsurance and retro markets are firming.