California’s not-for-profit residential earthquake insurer the California Earthquake Authority (CEA) is hoping to significantly upsize its latest catastrophe bond issuance, with the Sutter Re Ltd. (Series 20201- & 2020-2) issuance now targeting up to $700 million of reinsurance protection.
The California Earthquake Authority (CEA) returned to the catastrophe bond market about a fortnight ago for the first time this year, with its new transaction looking to add least $400 million of earthquake reinsurance protection from the capital markets to its tower.
With two series of notes being issued at the same time by newly established Bermuda special purpose insurer (SPI) Sutter Re Ltd., the CEA was clearly looking to cement the capital markets support within its reinsurance program with this issuance.
Now, it’s clear the CEA’s ambitions are to maximise the capacity support the cat bond can generate, with its overall target for the two series cat bond issuance now said by sources to be from $500 million at minimum, up to a maximum of $700 million of protection across the four tranches being sold to investors.
Sutter Re Ltd. will seek to issue the $500 million to $700 million of California earthquake reinsurance exposed notes for the CEA, providing the insurer with multi-year, fully collateralised reinsurance protection against earthquakes in California on an annual aggregate and indemnity trigger basis.
Two tranches of notes will provide coverage across a two-year term (the Series 2020-2 notes) and two tranches across three years (the Series 2020-1 notes) it seems, with each featuring annual loss occurrence periods for the purpose of aggregation.
The issuance will now seek a maximum of $400 million of protection for the CEA from each Series of notes issued, but $700 million is said to be the maximum across the two series and four tranches issued.
Each of the Series of catastrophe bond notes to be issued by Sutter Re Ltd. have Class A and Class F tranches. The Class A notes and Class F notes each have the same risk metrics and pricing, with the only differences being the term of two or three years depending on which Series they came from.
It continues to seem likely that the reason for issuing the two series with different terms is to better stagger the renewal profile of the CEA’s cat bond backed reinsurance coverage.
While set to upsize, perhaps significantly, the price guidance for all tranches of notes that Sutter Re will issue have moved up to the top-ends of guidance, we’ve been told.
The Series 2020-1 Class A Notes, with a three year term and attaching above a $6.472 billion retention covering a $500 million layer of the CEA’s reinsurance program, giving them an initial expected loss of 1.21%, launched with price guidance of 4.5% to 5%, but are now priced at 5%, we’re told.
The Series 2020-1 Class F Notes, also with a three year term and attaching above a $2.1 billion retention and covering a $500 million layer of the CEA’s reinsurance program, giving them an initial expected loss of 3.69%, launched with price guidance of 8% to 8.5%, but now this has moved to the top-end at 8.5%.
The Series 2020-2 Class A Notes will provide two years of cover, attaching above a $6.472 billion retention and covering a $500 million layer of the CEA’s reinsurance program, giving them an initial expected loss of 1.21% and launched with price guidance of 4.5% to 5%, which has now been fixed at 5%.
The Series 2020-2 Class F Notes will provide two years of cover, attaching above a $2.1 billion retention and covering a $500 million layer of the CEA’s reinsurance program, giving them an initial expected loss of 3.69% and launched with price guidance of 8% to 8.5%, will now price at the top-end of 8.5%.
We’re told that the two series from this transaction will now settle at different dates as well, with the Series 2020-1 notes set to be issued on May 15th and the Series 2020-2 notes on May 28th, which may simply be a function of addressing the available capacity in the market and helping ILS funds and investors with the reallocation of capital from maturing cat bond deals.
We’ll keep you updated on the eventual size of the issuance as this Sutter Re Ltd. (Series 20201- & 2020-2) catastrophe bond issuance from the California Earthquake Authority (CEA) comes to market.
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