The California Earthquake Authority (CEA) has successfully secured its first catastrophe bond transaction of 2021 at the upsized $215 million target, while the Ursa Re II Ltd. (Series 2021-1) catastrophe bond has been priced at the low-end of already reduced coupon guidance.
The pricing has moved considerably, once again reflecting high levels of investor appetite in the insurance-linked securities (ILS) market at this time, in particular for catastrophe bonds sponsored by recognised and trusted counterparties.
The CEA has now secured $215 million of of fully collateralized California earthquake reinsurance protection with the new issuance, which will take the earthquake insurers’ in-force catastrophe bond coverage to $2.34 billion when this deal completes in early March.
This new Ursa Re II 2021-1 catastrophe bond from the CEA launched to investors a few weeks ago, with a target at the time of securing at least $150 million of collateralized earthquake reinsurance protection for the insurer.
The market was receptive to the issuance and soon after the target was raised, with the cat bond expected to settle somewhere up to $215 million in size.
Now that upsized target has been secured and Ursa Re II Ltd. will issue a single $215 million Series 2021-1 Class F tranche of notes, which are being sold to third-party ILS investors and funds.
The proceeds of the sale will be used to collateralize an underlying earthquake retrocessional reinsurance agreement between Ursa Re II Ltd. and ceding reinsurer Swiss Re, which in turn will enter into a reinsurance agreement with the CEA.
The notes will provide the CEA with a $215 million 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.
The single Class F tranche of notes from this Ursa Re II 2021-1 catastrophe bond issuance, which have an initial expected loss of 3.74%, were initially offered to ILS investors with price guidance in a range from 6.75% to 7.25%.
The strong investor response helped that price guidance tumble, with the coupon range dropping to 6.25% to 6.75%, so below the original spread guidance.
In the end, the CEA secured the upsized $215 million of reinsurance protection at a coupon of 6.25%, so the lowest-end of the reduced price guidance range.
That’s a roughly 11% decline in pricing from the mid-point of initial guidance.
As we noted, once this deal settled the California Earthquake Authority (CEA) will have $2.34 billion of catastrophe bond backed, multi-year earthquake reinsurance protection in-force.
That’s lower than the high point of its cat bond program, so it is entirely possible we see the CEA back in the market again later this year as its reinsurance needs continue to expand.