Convex Group, the specialty insurance and reinsurance company founded by Stephen Catlin, has successfully secured $300 million of reinsurance from the capital markets through its first ever catastrophe bond issuance, the Hypatia Ltd. (Series 2020-1) multi-peril retro transaction.
Convex’s first catastrophe bond appears to have been particularly well-received, becoming one of the only transactions to see its coupon price below the initial guidance range of recent months.
The Hypatia Ltd. catastrophe bond was launched by Convex at the end of June, at the time seeking at least $150 million of multi-peril retrocessional reinsurance across a two tranche of notes issuance.
Thanks to what appears to have been strong investor demand, as well as Convex’s ambitions for coverage, the transaction doubled in size and has now been priced as a $300 million offering.
So Convex will now benefit from $300 million of property catastrophe retrocessional reinsurance protection for its North American and Canadian books of business with this Hypatia Ltd. catastrophe bond.
The protection will run across almost three years, on an annual aggregate basis, using a weighted PCS industry loss index trigger, and across an almost three year term.
The reinsurance agreements mean the $300 million of notes 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.
Alongside the doubling in size of the reinsurance cover to be secured with the Hypatia Re cat bond deal, Convex has also secured the cover at attractive pricing.
Each tranche of notes will provide Convex $150 million of reinsurance across separate layers, at different attachment points.
The 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.
While, the Class B tranche provides the same coverage, but lower down attaching at $80 million, again after a $30 million franchise deductible.
The less risky Class A tranche of notes have an initial expected loss of 1.71%, launched with price guidance of 7.25% to 7.75%, which then narrowed to 6.75% to 7.25% and we’re now told this has been fixed at the low-end of reduced guidance, at a 6.75% initial coupon spread.
The riskier Class B notes, with an initial expected loss of 3.06%, were first offered with coupon price guidance of 10% to 10.5%, which fell and was narrowed to 9.75% to 10% and we’re now told finalised at the low-end again, at a 9.75% initial spread.
So while the transaction doubled in size, Convex has secured the reinsurance coverage from its first cat bond at roughly a 10% discount on initial mid-point of pricing for the Class A tranche and a 5% discount for the riskier Class B’s.
This looks like a positive first visit to the catastrophe bond market for expansive re/insurer Convex and hopefully this experience will draw the company back to the capital markets again in future.