Convex enters cat bond market with $150m Hypatia multi-peril deal

Convex Group, the specialty insurance and reinsurance company founded by Stephen Catlin, is sponsoring its first catastrophe bond transaction, bringing a $150 million Hypatia Ltd. (Series 2020-1) multi-peril retro transaction to market.

Convex is targeting property catastrophe retrocessional reinsurance protection for its North American and Canadian books of business with this Hypatia Ltd. catastrophe bond.

We understand from sources that the industry loss triggered Hypatia cat bond deal is being transacted in swap form rather than reinsurance, while the special purpose issuer in Bermuda was originally going to be named Hypatia Re Ltd., but will be changed to Hypatia Ltd.

We’re told that Hypatia Ltd. will look to issue two tranches of Series 2020-1 cat bond notes, both of which will be exposed to losses from U.S. named storms, including Puerto Rico, D.C and the US Virgin Islands, as well as both U.S. and Canadian earthquake risks.

Coverage will be on an annual aggregate basis, using a weighted PCS industry loss index trigger, and across an almost three year term.

The cedent will be Convex Re, the Convex group reinsurance entity, but the coverage is also across entities such as Convex’s UK insurer as well, we understand.

A currently $100 million Class A tranche of notes to be issued by Hypatia Ltd. will provide Convex with aggregate industry loss based retro reinsurance attaching at $120 million of losses, after a $30 million franchise deductible, with this tranche of notes having an initial expected loss of 1.71% and being marketed to investors with coupon guidance of 7.25% to 7.75%, we’re told.

A $50 million Class B tranche will provide identical coverage, but attaching lower down at $80 million, again after a $30 million franchise deductible, giving the notes an initial expected loss of 3.06% and coupon price guidance of 10% to 10.5%.

It’s encouraging to see Convex looking to the capital markets for retrocessional reinsurance protection at this time, as it suggests cat bond spreads while up significantly are still comparable with other sources where this industry loss protection may have been found.

It also likely reflects the dented retro marketplace, where capacity is more limited making the cat bond market one of the most abundant sources of industry loss based reinsurance protection at this time.

There have been a number of new catastrophe bond market entrants so far in 2020, which bodes well for continued issuance activity through the remainder of the year and into 2021.

We will keep you updated as Convex’s first catastrophe bond, this Hypatia Ltd. (Series 2020-1) transaction, comes to market and you can read about every single cat bond in the Artemis Deal Directory.