The new catastrophe bond issuance for ARX Holding, the Progressive-owned parent of American Strategic Insurance Group, has now been fixed at a smaller $80 million size, while one tranche of notes are not being issued at all, and the price for the remaining tranche of Bonanza Re Ltd. (Series 2021-1) cat bond notes has been fixed at the top-end of revised guidance.
At its launch to investors at the start of December, this cat bond featured one tranche of notes aiming to provide $100 million of reinsurance for American Strategic’s insurance entities, as well as a second unsized tranche of notes.
As we updated our readers in recent days, that unsized tranche looked likely not to be issued at all, so shrinking the issuance, while the price guidance had risen.
Originally, both tranches of notes to be issued targeted annual aggregate, multi-peril, indemnity reinsurance protection for sponsor American Strategic.
The Series 2021-1 Class B tranche of notes that will now be issued are set to provide American Strategic with a one-year source of annual aggregate and multi-peril reinsurance protection, across 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 its launch, Bonanza Re Ltd. was aiming to issue $100 million of the Class B notes, that would attach at $650 million of losses, spanning a $100 million layer of the reinsurance tower.
The target size for the Class B tranche then shrank slightly, with between $75 million and $100 million aimed for.
We’re now told that the notes have been priced and the Class B tranche has been fixed at $80 million in size.
These Class B notes, that have an initial expected loss of 0.32%, were first offered to investors with pricing in a range of 89% to 88% of par, which equated to a roughly 11% to 12% coupon.
The pricing was finalised at the revised 87% of par, which is effectively a price increase as the coupon equivalent will 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 not being issued at all, but we’d imagine will still get placed in the private market as reinsurance (traditional or collateralized).
Given the state of the reinsurance renewal market and the clear aversion to some higher-risk aggregate layers of reinsurance and retrocession, it’s no surprise this tranche of notes was tested with the market and then withdrawn, to be placed elsewhere.
So, in summary, American Strategic has secured $80 million of aggregate reinsurance to cover it over the next year, which is still a good result in the currently disrupted reinsurance market for that type of coverage.
Having seen pricing rise for both Swiss Re’s and Hannover Re’s latest catastrophe bonds this week, the cat bond market is giving off signals that investors will not continue to tighten prices, particularly at a time when reinsurance and retro markets are still firming.