The latest catastrophe bond to hit the market, Eurus III Ltd., is following the trend of almost every other cat bond of 2012 and has increased in size during the marketing phase, according to our industry sources. Eurus III, which began its life as a single tranche €75m European windstorm cat bond seeking to provide retro cover to sponsor Hannover Re, has now increased in size to €100m.
The 21st deal of the year according to our Deal Directory, Eurus III marks a now regular return to the cat bond market for Hannover Re, and this latest deal replacing the cover provided by the Eurus II Ltd. cat bond whic matured in April this year. That left Hannover Re without a cat bond funded source of European windstorm cover, so it is encouraging to see them return to the market.
Eurus III will provide retrocession cover to three named entities of the Hannover Re group; Hannover Rückversicherung AG, E+S Rückversicherung AG and Hannover Re (Bermuda) Ltd. The risk period runs from the end of September 2012 to the end of March 2016, so giving Hannover Re a fully collateralized source of cover for four windstorm seasons in Europe. Protection is on a per-occurrence basis and the transaction will utilise an industry loss trigger based on a PERILS index of loss estimates.
We’re told that Eurus III will price below the expected range that it was originally marketed at, another trend we’ve seen a lot of this year in the cat bond market. This means that Hannover Re will secure the cover for a slightly cheaper rate than was originally expected as investors have been willing to take on the risk for a lower premium. It’s encouraging for the market to see this trend continue as it is helping to keep cat bonds more competitively priced versus traditional reinsurance. We suspect the transaction will have been oversubscribed. The deal is now expected to price at between 3.75% and 4%, compared to an initial pricing expectation that was for a range of 4% to 4.5%.
The transaction should price tomorrow we’re told and will close a week later.