CEA’s Ursa Re 2017-2 still $400m, pricing fixed with little uplift


The latest catastrophe bond from the California Earthquake Authority (CEA), the Ursa Re Ltd. (Series 2017-2) transaction, has so far not increased in size, still targeting $400 million of collateralized quake reinsurance, but the price guidance has now been fixed at levels which show very little in the way of uplift.

The transaction was launched to the cat bond investor market at the beginning of the month, with two tranches of notes offered and each sized at $200 million, as the CEA sought to expand its capital markets backed earthquake reinsurance coverage.

The Ursa Re 2017-2 cat bond issuances will provide the CEA with three years of annual aggregate reinsurance protection using an indemnity trigger, while the protection will run to late November 2020.

The first tranche, a $200 million Class C layer, were launched with an initial expected loss of 1.32% and offered to investors with price guidance in a range from 3.5% to 4.25%.

The second tranche, a $200 million Class D layer, have an initial expected loss of 2.79% and were offered to cat bond investors with price guidance of 5% to 5.75%.

Both tranches remain sized at $200 million, we understand, despite each covering a larger layer of risk ($400m for the Class C layer and $500m for the Class D) meaning there was plenty of room to upsize.

But price guidance has now been fixed for the notes, with the Class C pricing put at 4%, so towards the upper end, and the Class D at 5.25%, so nearer the lower end.

Looking back at pricing data from other Ursa Re cat bonds sponsored by the CEA in recent years and it is clear there is little pricing uplift in this catastrophe bond, despite it being one of the first after the recent major losses.

The multiples are aligned with other transactions of the last few years. The Class C notes, with their multiple of 3 times expected loss, are very closely aligned with two other lower-risk tranches from 2016 and 2014, in terms of risk adjusted price. The Class D notes, which have a multiple of 1.88 times the expected loss, are priced below 2014 and 2015 tranches which have the closest risk profile.

So there is little, if any, sign of a post-loss price hike with this cat bond. But then why should there be when this California earthquake reinsurance risk is a diversifying peril that has not faced any losses? As we wrote last week, even cat bond investment managers aren’t expecting any significant move in cat bond spreads.

We will have to wait and see if or how cat bond pricing reacts when pure U.S. hurricane exposed transactions come to market, perhaps Florida wind as the majority of losses for catastrophe bond investors emanate from hurricane Irma there.

This Ursa Re Ltd. (Series 2017-2) transaction is expected to be priced this week and complete by the end of the month, we’ll update you should anything further change. You can read about this and every other catastrophe bond since the market began in the Artemis Deal Directory.

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