According to sources the California Earthquake Authority’s (CEA) latest catastrophe bond offering, the Ursa Re Ltd. (Series 2016-1) transaction, could be upsized to as large as $500 million in size with pricing moving towards the upper end of initial guidance.
The Ursa Re 2016-1 cat bond launched earlier this month and sees the CEA returning to the capital markets seeking a three-year source of fully collateralised reinsurance protection against California earthquake losses, through the sale of a single tranche of annual aggregate and indemnity structured cat bond notes to investors.
When the transaction launched the CEA was seeking $300 million of reinsurance protection through Ursa Re 2016-1, but we’re told today that the deal is now targeting from the initial $300 million to as high as $500 million of cover, a potential 67% upsize, if investors are receptive.
Given the demand for catastrophe bond investments right now, it seems entirely possible that the CEA could achieve the upper target and hit the $500 million of cover with this deal, which would make Ursa Re 2016-1 the biggest single cat bond issuance in the CEA’s history of using the capital markets for reinsurance cover.
At the same time as heading for an increase in size, we understand that the price guidance has been narrowed towards the upper end of the initially marketed range.
The deal launched offering the ILS investor base a coupon in the range of 3.25% to 4%, but we understand that this has been tightened to a 3.75% to 4% range. With an initial expected loss of 2.18%, that seems aligned with multiples seen in the market recently.
It would be encouraging to see the CEA upsizing this cat bond and increasing its use of ILS capacity again, as it had reduced slightly the amount of its reinsurance cover sourced through cat bond issues in the last year as it found pricing more attractive in traditional and collateralised reinsurance markets.
It’s a sign that the cat bond market is ready and able to take on more risk and that investor appetite remains very high, providing an opportunity for any potential sponsors to bring new cat bond deals to market right now.
We understand that the Ursa Re Ltd. (Series 2016-1) catastrophe bond will price next week and complete by the end of the month.
We will update you as the transaction comes to market and you can read about this and every other CEA sponsored cat bond in the Artemis Deal Directory.