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Convex aims to upsize Hypatia 2023-1 cat bond at below guidance pricing


Convex Group, the specialty insurance and reinsurance company, has raised the target for its new Hypatia Ltd. (Series 2023-1)  catastrophe bond issuance to as much as $150 million, a potential 50% increase, while aiming to lower the spread pricing below the initial guidance.

convex-logoConvex is the latest cat bond sponsor in 2023 that looks set for strong execution, compared to the initially marketed deal terms.

It’s important to note though, like other cat bonds currently in the market, while execution looks strong compared to how the Hypatia 2023-1 cat bond was first presented to investors, it will still come at the elevated spread levels being seen amid the hard reinsurance market we see today.

Convex sponsored its first Hypatia catastrophe bond back in 2020, when it secured $300 million of protection from the capital markets.

For 2023, this Hypatia cat bond issuance sees Convex aiming to secure retrocessional reinsurance coverage for the same perils and in the same format as that deal, coverage for the peak North American perils of hurricane and earthquake risks, on an annual aggregate and industry loss basis.

At launch to investors around one week ago, Convex was targeting $100 million of cover from this new Hypatia Ltd. Series 2023-1 cat bond.

Now, sources have told us that the target size has been lifted, with up to $150 million of retro reinsurance being targeted by Convex.

At the same time, investor demand for new cat bond issues looks set to help Convex reduce the pricing somewhat.

The now up to $150 million of Class A notes have an initial base expected loss of 2.52% and were first offered to investors with coupon guidance of 11.75% to 12.5%.

But we’re now told the spread guidance range has been reduced, to 10.5% to 11.75%, just over an 8% decline at the mid-points.

At the new and reduced pricing mid-point, the multiple-at-market paid to investors would be just 4.4 times the expected loss, which is a bit lower than other recent issues, especially for an aggregate cat bond in the current climate.

So it will be interesting to see where this new cat bond from Convex prices, with anywhere in the new reduced guidance range indicating strong execution and investor support for its second catastrophe bond deal.

Finally, we’re also told that settlement of this new cat bond from Convex is expected to be brought forward to close within March, bringing what was a second-quarter cat bond into the first-quarter 2023 issuance figures, if that occurs.

It’s actually a little unusual for cat bonds to accelerate their issuance as much as this one appears likely to, but that’s likely a reflection of the relatively strong conditions for issuance that sponsors are experiencing right now.

You can read all about Convex’s second catastrophe bond, this Hypatia Ltd. (Series 2023-1)  transaction, and almost every other cat bond ever issued in the Artemis Deal Directory.

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