Insurance-linked securities (ILS) investors and catastrophe bond funds valued the diversification opportunity that was the recent EUR 100 million European peril focused recently completed Windmill II Re DAC (2020) transaction sponsored by Achmea, according to catastrophe modeller RMS.
Diversification opportunities are always readily welcomed by cat bond funds and their investors and in 2020 this was no different as the focus had been on peak U.S. perils through the year, but the Windmill II Re deal brought a welcome opportunity.
Catastrophe risk modelling specialist RMS worked alongside reinsurance broker capital markets unit Willis Re Securities to bring this latest cat bond to market for the sponsoring Netherlands headquartered primary insurance group Achmea.
Jin Shah, Client Director at RMS, explained, “Investors have welcomed Achmea as a new sponsor to the market, valuing the diversifying nature of Europe windstorm risk, and investors have shown confidence in the modeling analysis provided by RMS.
“It’s always an enjoyable experience working with new issuers and I’m glad to see excellent execution in these uncertain times. It’s great to see the ILS market remains an ample source of capacity at competitive pricing for re/insurance coverage.”
The successful transaction provides Achmea with a multi-year source of capital markets backed reinsurance for its property catastrophe risks, specifically from a range of windstorm types.
RMS acted as the third-party modeling agent on the cat bond transaction, an important role in helping to give an unbiased view of the risk covered by the bond to ILS investors.
Based on RMS’ catastrophe modeling, the EUR 100 million of notes issued by Windmill II Re DAC have an initial expected loss of 2.56% and were launched to cat bond investors with coupon price guidance in a range from 4.25% to 4.75%.
RMS notes that investor appetite for the issuance was strong, helping the cat bond eventually settle at a spread of 4.00%, i.e., below the lower end of the initial guidance range.
This deal is one of the rare few to price below guidance since the COVID-19 pandemic broke out and RMS also highlighted how it increased in size, having begun marketing at EUR 80 million of reinsurance for Achmea.
The sponsor was pleased with the execution received and the reception of cat bond investors to its second ever issuance.
Ewoud Bom, managing director of Achmea Reinsurance said, “We chose to return to the ILS market with the Windmill II Re issuance under the 144A rule to further diversify our access to reinsurance capacity worldwide and to broaden our relationships with capital market investors.
“We are very pleased with the reception this new issuance has received from investors, which confirms the mutual benefit of our strategy to transfer part of our risk to the capital market that we started in 2013 with our first cat bond issuance.”
RMS’ analysis of spread multiples of public cat bonds issued since the start of 2018 shows that, on average, spreads for transactions in 2020 have been notably higher than in the two previous years.
Something also reflected in our own ILS market data, as seen in our latest catastrophe bond market report here.