Chubb’s East Lane Re VI cat bond likely to upsize, price down

U.S. primary insurance group Chubb’s sixth catastrophe bond transaction, East Lane Re VI Ltd. (Series 2014-1), looks set to increase in size to somewhere between the original $225m and $270m, while the price guidance has been lowered.

East Lane Re VI looks set to become another catastrophe bond to upsize and price down, as every other marketed deal has lately, with strong demand from ILS investors showing that issuance conditions for sponsors are extremely attractive right now. The string of recent deals which have been oversubscribed shows potential sponsors that the cat bond market is keen for new risk capital, which could help to bring new sponsors to market as we approach the U.S. hurricane season over the next few months.

With East Lane Re VI Ltd. Chubb is seeking a four-year source of fully-collateralized reinsurance protection for the perils of U.S. named storms, earthquakes (including fire following and sprinkler leakage), severe thunderstorms and winter storms, on an indemnity and per-occurrence basis.

The transaction launched with a preliminary size of $225m but Artemis understands that this is likely to increase with the cat bond now being offered with a range suggested, of $225m to $270m as investor demand looks set to help Chubb grow its sixth cat bond. Given the attractive issuance conditions in the cat bond market it wouldn’t be surprising to see Chubb go even bigger with this deal if investor oversubscription helps them secure a larger amount of cover.

At the same time the price guidance has been lowered and narrowed, Artemis understands. When East Lane Re VI launched it was being marketed with a proposed coupon guidance range of 3% to 3.75%. That range has now been lowered and narrowed to 2.75% to 3%, enabling Chubb to secure this cat bond protection at a significantly lower coupon than initial expectations. If it prices at the low end of this reduced range it would represent a saving of nearly 19% from the mid-point of the initial range.

As we wrote the other day Chubb’s latest cat bond is another to contain some unmodelled risks within the covered business. With the deal set to upsize and price lower it demonstrates investors comfort with the inclusion of some more complex risks within a catastrophe bond deal.

The East Lane Re VI Ltd. (Series 2014-1) catastrophe bond from Chubb is expected to price this week. We will update you on any further developments. The cat bond has been added to the Artemis Deal Directory.