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Casablanca Re cat bond shrinks to $87.7m before pricing


Floridian primary insurer Avatar Property and Casualty Insurance Company’s first catastrophe bond issuance has now shrunk slightly before final pricing, with the Casablanca Re Ltd. (Series 2017-1) transaction now set to secure $87.7 million of reinsurance coverage for the firm.

The Casablanca Re 2017-1 cat bond had been targeting $100 million of fully-collateralized reinsurance cover for Avatar since the deal launched, but now the highest risk tranche of notes has shrunk, while the lowest risk has increased in size, just in advance of the coupons being priced.

The Casablanca Re 2017-1 Class A tranche of cat bond notes, which launched at $55.15 million in size, is now targeting $60 million of cover for Avatar. This lowest risk tranche, with an expected loss of 0.8%, were initially offered to cat bond investors with coupon price guidance of 3.25% to 4%, which was subsequently narrowed to 3.5% to 3.75%. The guidance has now been fixed at the upper end of the adjusted range, at 3.75% we understand.

The middle risk $21.7 million Class B tranche of notes remains that size. With an expected loss of 1.77%, these notes initially had price guidance in a range from 5% to 6%, which then fell to 5% to 5.5%, and has now been fixed at 5.25%, so towards the lower end of initial guidance.

Finally, the riskiest Class C tranche which launched targeting $23.15 million of reinsurance cover for Avatar has now shrunk right down to $6 million, we’re told. This tranche has an expected loss of 9.93%, were at first offered to investors with price guidance of 16% to 18%., which was then narrowed and reduced towards the bottom end, at 16% to 17%. The pricing has now been fixed at the low-end of initial guidance at 16%, we hear.

It appears that the higher risk tranche just hasn’t been attractive to enough investors, at the pricing offered, and hence it has shrunk. Conversely the lower risk tranche has proved more attractive, even with the pricing closer to the upper end of guidance.

Of course this largely comes down to what the sponsor Avatar wants to achieve from this cat bond and what pricing could have been achieved in the traditional reinsurance market, as no doubt the companies broader reinsurance program placement is ongoing right now.

With the pricing set to be assigned to each tranche today, it seems unlikely much will now change with this catastrophe bond as it approaches launch at the end of this month.

Should there be any further changes we will continue to update you as the Casablanca Re Ltd. (Series 2017-1) catastrophe bond comes to market and you can read about this and every other cat bond in the Artemis Deal Directory.

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