Bermuda headquartered reinsurance company Everest Re is returning to the catastrophe bond market with its second issuance this year, with the launch to investors of Kilimanjaro Re Ltd. (Series 2014-2) a $350m U.S. and Canada earthquake cat bond.
Everest Re sponsored its first cat bond in April, the $450m U.S. named storm and earthquake Kilimanjaro Re Ltd. (Series 2014-1). Clearly happy with the process of issuing a cat bond and further demonstrating the reinsurers comfort with capital market investor-backed retrocessional capacity, Everest Re is now back with another transaction.
In this issuance Everest Re is seeking a source of fully-collateralized retrocessional reinsurance protection against losses from U.S. and Canadian earthquakes. We understand from market sources that the reinsurer is seeking $350m of protection from the bond, which together with its earlier cat bond would give Everest Re $800m of protection from the capital markets in cat bond form.
Kilimanjaro Re Ltd., Everest Re’s Bermuda domiciles special purpose insurer, will seek to issue a single tranche of Series 2014-2 Class C notes which will be exposed to U.S. earthquakes, we understand. The deal is said to have a five-year term and the structure has been designed around a PCS industry loss trigger.
Coverage will be for the U.S., Puerto Rico and also Canada, sources tell us. The trigger itself will be a regional weighted industry loss index, based on PCS reported catastrophe losses for qualifying earthquake events. The cat bond will provide per-occurrence protection from an initial industry loss index attachment point of $1.075 billion up to $2.150 billion, we understand.
We’re told that the initial attachment probability for the notes will be set at 2.26%, while the initial expected loss will be 1.46%. In terms of pricing, we understand that the Kilimanjaro Re 2014-2 catastrophe bond notes will be marketed with a coupon guidance range of 3.5% to 4%.
Aon Benfield Securities is the structuring and bookrunning investment banking firm working on the transaction, while risk modelling and calculation services are being provided by AIR Worldwide.
According to sources the transaction is likely to complete well in advance of the end of year reinsurance renewals, which should give Everest Re a chance to lock in its capital market protection before the market gets too competitive or capacity becomes more limited.
Investors are likely to welcome this first catastrophe bond of Q4 2014 and will be hoping that there are more to come.We’ll update you as we hear any more about this transaction and keep you posted as Everest Re’s new cat bond deal comes to market and if we hear of any others launching.