Convex’s target for Hypatia cat bond doubles to $300m

The target size for the first catastrophe bond transaction to be sponsored by Convex Group has been increased, with sources now saying that the Hypatia Ltd. (Series 2020-1) multi-peril retro transaction is likely to double to $300 million, we can reveal.

Convex Group, the specialty insurance and reinsurance company founded by Stephen Catlin, approached the insurance-linked securities (ILS) market and its investors with its first catastrophe bond transaction recently, launching the Hypatia Re cat bond deal in search of at least $150 million of multi-peril retrocessional reinsurance.

The aim was to secure the $150 million of property catastrophe retrocessional reinsurance protection for Convex’s North American and Canadian books of business with this Hypatia Ltd. catastrophe bond, in an industry loss format.

Overall, the target has now doubled to $300 million of coverage, while the pricing has been reduced to below the initial guidance range, which will be particularly encouraging for Convex in its first visit to the cat bond market.

Special purpose insurer (SPI) Hypatia Ltd. was aiming to issue two tranches of Series 2020-1 cat bond notes, both of which are 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.

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

The Class A tranche of notes to be issued by Hypatia Ltd., which launched at $100 million in size and will provide Convex with aggregate industry loss based retro reinsurance attaching at $120 million of losses, after a $30 million franchise deductible, now targets a 50% increase to $150 million, we’re told.

At the same time, the Class A tranche of notes with an initial expected loss of 1.71%, have seen their price guidance drop from initial guidance of 7.25% to 7.75%, to now be offered with a coupon in a range from 6.75% to 7.25%.

Meanwhile, the Class B tranche which will provide identical coverage, but attaching lower down at $80 million, again after a $30 million franchise deductible, had launched at just $50 million in size but are now expected to triple to $150 million as well.

The Class B notes will have an initial expected loss of 3.06% and were initially offered with coupon price guidance of 10% to 10.5%. That guidance has now fallen as well, to 9.75% to 10%.

Seemingly demand from cat bond investors has been high for Convex’s first catastrophe bond issuance, which looks like it could lead to particularly strong execution at a much larger size and with lower than initially expected pricing.

Which would be a great result, as Convex taps the catastrophe bond market for reinsurance for the first time.

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.