It will be no surprise for our regular readers to learn that another catastrophe bond transaction has increased in size and seen its price guidance be reduced while the deal has been marketing. The latest cat bond to follow this trend is the Bosphorus 1 Re Ltd. parametric cat bond, being issued on behalf of the Turkish Catastrophe Insurance Pool (TCIP), which has increased in size by 150% while the price guidance has dropped to below the bottom end of the marketed range.
The Bosphorus 1 Re Ltd. cat bond will provide the TCIP with a three-year source of fully-collateralized reinsurance protection against earthquakes affecting Turkey, predominantly around the Istanbul region. Coverage from the cat bond is on a per-occurrence basis, and for an earthquake to qualify as a covered event it must meet specific criteria within the parametric trigger which we explained in some detail here.
The Bosphorus 1 Re cat bond began life as a $100m tranche of notes but we understand from our sources that the latest update from the bookrunner has the deal sized 150% larger at $250m. This is a big increase in reinsurance protection from catastrophe bonds for the TCIP. It benefitted from the 2009 Ianus Capital Ltd. transaction but that was much smaller. It’s encouraging to see the TCIP growing the contribution that the capital markets makes to its reinsurance needs.
At the same time as the cat bond upsizing we understand that the price guidance has reduced the marketed coupon range to below the bottom of the range it had originally been pitched at. The deal began marketing with a price range of 2.75% to 3.25%. above the collateral investments yield. That price guidance has now been lowered to 2.50% – 2.75%, which equates to a drop in pricing (using the mid-points of each range) of around 13%. This coupon price drop is in-line with other cat bonds issued in 2013 as you can see in an article we published yesterday discussing this trend.
So another cat bond in 2013 jumps in size and looks set to complete at a cheaper coupon level than originally expected. When Bosphorus 1 Re completes at its new size it will take 2013 cat bond issuance above the $2 billion level for the first time.