CEA could upsize new Ursa Re II cat bond to $215m

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The California Earthquake Authority (CEA) has lifted its target size for its first catastrophe bond transaction of 2021, now seeking up to $215 million of fully collateralized earthquake reinsurance protection with the Ursa Re II Ltd. (Series 2021-1)  issuance.

california-earthquake-authority-logoWhen this latest catastrophe bond from the CEA launched to investors a few weeks ago it was aiming for at least $150 million of collateralized earthquake reinsurance protection for the insurer.

Now, the target has been raised, with the cat bond expected to settle somewhere up to $215 million in size.

At the same time the pricing has tightened, suggesting a likely efficient execution and cost-effective reinsurance from the capital markets at this time.

Special purpose insurer Ursa Re II Ltd. will now issue a single Series 2021-1 Class F tranche of notes of between $150 million and $215 million in size, we’re now told.

The notes will be sold to third-party ILS investors and funds, with the proceeds used to collateralize an underlying earthquake retrocessional reinsurance agreement between Ursa Re II Ltd. and ceding reinsurer Swiss Re, which in turn enters into a reinsurance agreement with the CEA.

The notes will provide the CEA with a source of collateralized California earthquake reinsurance protection across a roughly three-year and nine month term, with the cover delivered on an annual aggregate and indemnity trigger basis.

As we explained previously when this deal emerged, the unusual term appears to be designed to bring this latest CEA cat bond into line with some of its other sources of protection maturity dates.

The now up to $215 million of Class F notes from this Ursa Re II 2021-1 catastrophe bond issuance, which have an initial expected loss of 3.74%, were at first offered to ILS investors with price guidance in a range from 6.75% to 7.25%.

We’re now told that this pricing has fallen, with an amended range now being marketed of 6.25% to 6.75%.

As a result, the reinsurance protection from these cat bond notes, which will sit across a $500 million layer of the CEA’s program attaching at $2.1 billion of losses, may come in at or below the initial price guidance the notes were marketed with.

The CEA’s reinsurance and catastrophe bond risk transfer program reached a new high at almost $9.6 billion in size in October 2020, but then shrank slightly after some maturing cat bond protection to $9.15 billion as of December 2020.

As we explained at the time in December, a new catastrophe bond was likely, as the CEA renewed a significant amount of its reinsurance protection in January, so a visit to the capital markets was also likely.

Now, that visit to the capital markets has begun, with what will be the ninth cat bond to be sponsored under an Ursa Re name by the CEA and the fourteenth catastrophe bond with the California Earthquake Authority listed as the direct sponsor in our Deal Directory.

We’ll keep you updated as this new Ursa Re II Ltd. (Series 2021-1)  catastrophe bond issuance from the California Earthquake Authority (CEA) comes to market.

You can read all about this new transaction and every other catastrophe bond issued in the Artemis Deal Directory.

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