Having struggled in placing reinsurance in October and feeling that the January renewals could be a further challenge, the California Earthquake Authority (CEA) has successfully sponsored the largest catastrophe bond issue since hurricane Ian struck, securing a new $305 million Ursa Re II Ltd. (Series 2022-2) deal.
This placement of a significant $305 million transaction at a time of severe global reinsurance market upheaval is testament to the cat bond market’s ability to support its long-term sponsors when they need capacity.
We’re told that Swiss Re Capital Markets was the sole structuring agent and bookrunner for this new CEA catastrophe bond issuance.
As said, this is the largest cat bond placement since hurricane Ian disrupted the marketplace, showing that investors remain attracted to cat bonds as an asset class and have the desire and capital to support long-term partners such as the CEA.
We’re told that the CEA’s special purpose insurer Ursa Re II Ltd. has issued two tranches of Series 2022-2 cat bond notes that have been sold to investors and the proceeds used to collateralize underlying earthquake reinsurance agreements.
The total issuance size is $305 million and that provides the CEA with California earthquake reinsurance protection on an indemnity and annual aggregate basis, providing protection across a nearly three-year term to the end of November 2025.
Ursa Re II has issued a $185 million tranche of Class AA notes, which are among the most senior ever issued for the CEA.
The Class AA notes would attach at $8.475 billion of losses to the CEA and cover 18.5% of a $1 billion layer of its reinsurance tower.
That gives the Class AA notes an initial attachment probability of 1.13%, an initial expected loss of 1.05% and we’re told the initial risk interest spread to be paid to investors is 7%.
Ursa Re II has also issued a $120 million tranche of Class B notes, which are riskier and cover a $500 million layer of the reinsurance tower from an attachment point of $4.407 billion for the CEA, we understand.
That gives the Class B notes an initial attachment probability of 2.43%, an initial expected loss of 2.3% and we’re told the initial risk interest spread to be paid to investors is 10.25%.
Clearly these multiples are far higher than a typical California quake cat bond deal might have been issued at a year ago.
So it’s encouraging to see the CEA remaining committed to its use of cat bonds, as well as the cat bond market’s ability to support the sponsor with important risk capital at a price that must be comparable to the traditional reinsurance market.
You can read all about this new Ursa Re II Ltd. (Series 2022-2) catastrophe bond from the California Earthquake Authority (CEA) and every other cat bond ever issued in the extensive Artemis Deal Directory.