Covéa sponsors €200m Hexagon III Re cat bond in Singapore

Covéa Group, the French mutual insurance society, is back in the catastrophe bond market with a new Hexagon III Re Pte. Ltd. (Series 2021-1) transaction targeting €200 million of reinsurance from the capital markets to cover losses from some of its peak perils and with the deal being issued out of Singapore.

This is Covéa’s third visit to the catastrophe bond market, having sponsored two Hexagon cat bonds in 2017 and 2019, both of which were issued out of Ireland and were largely focused on securing windstorm reinsurance protection for the insurance group.

Now, the mutual insurer has returned with a new multi-peril arrangement through which it seeks at least €200 million of collateralised reinsurance to cover losses from windstorms, hail storms and certain other natural peril events.

The covered area for this cat bond transaction includes mainland France, Monaco and Andorra, but not the overseas territories of France.

Covéa Group has opted to shift the cat bond issuance domicile to Singapore for its third catastrophe bond, which will see the mutual insurer benefiting from the countries ILS grant program that will pay a portion of the upfront issuance costs.

Hexagon III Re Pte. Ltd. has been registered as a special purpose reinsurance vehicle in Singapore and it will seek to issue two tranches of Series 2021-1 cat bond notes.

The two tranches of notes are slated to secure at least a €200 million four year capital markets-backed source of reinsurance for Covea, with one tranche focused solely on windstorm coverage in France, Monaco and Andorra and the other including hail and other natural peril events, such as snowfall, earthquake, frost, ice, flooding, volcanic risks, mudslides and avalanches.

Both tranches will provide Covea with indemnity reinsurance protection on a per-occurrence basis and will come on-risk from the start of 2022, with cover running through to the end of 2025, we understand.

Hannover Re sits in the middle of this transaction as ceding reinsurer, to assist Covea in interfacing with the capital markets.

The two tranches of Series 2021-1 notes issued by Hexagon III Re Pte. Ltd. will be sold to catastrophe bond investors and the proceeds used to collateralise retrocessional reinsurance agreements between the issuer and Hannover Re, which will in turn enter into reinsurance agreements with Covea companiess, which include three named insurers MMA IARD SA, MAAF Assurances SA and GMF Assurances as well as other entities within the Covéa Group.

A €100 million Class A tranche of notes will provide windstorm, hail storm and other natural peril event cover, attaching at €450 million of losses and covering a €400 million layer of Covea’s reinsurance tower, so has room to grow, we’re told.

The Class A notes will have an initial expected loss of 1.83% and are said to be being offered to investors with coupon guidance in a range from 2.5% to 3%.

A €100 million Class B tranche of notes only cover windstorm risks and attach lower down at €50 million, so are far riskier, and cover just a €100 million layer, so won’t upsize, we understand.

This Class B tranche of notes have an 8.05% initial expected loss and are being offered with price guidance of 9% to 9.5%, our sources said.

These are very low multiples-at-market, as you can see, reflecting pricing of reinsurance for these perils which often tends to be low in Europe. The Class B notes appear to offer very little in the way of spread above expected loss, so it will be interesting to see how these are received and where pricing settles.

It’s encouraging to see Covéa continuing with its use of catastrophe bonds, especially as the company is once again set to acquire global reinsurer PartnerRe which would see it with a greatly expanded peril footprint around the globe, so could result in more cat bond issues in time.

We understand issuance is expected to complete later this month and you can read all about this new Hexagon III Re Pte. Ltd. (Series 2021-1) catastrophe bond from Covea Group and every other cat bond transaction in our Deal Directory.