Global insurance and reinsurance firm Everest Re is back in the capital markets with its first catastrophe bond issuances since late 2019 and is seeking support from insurance-linked securities (ILS) investors for a potential $800 million or greater of retro reinsurance coverage through two series of Kilimanjaro III Re Ltd. 2021 cat bonds.
Everest Re has $950 million of retrocessional reinsurance protection from its April 2017 issued Kilimanjaro II Re Ltd. (Series 2017-1) catastrophe bond set to mature in April 2021, so it’s good to see the re/insurer back in the market with a potentially large, replacement for this capital markets backed protection.
Like other recent cat bond issuances from Everest Re, this Kilimanjaro III Re 2021 placement features two series, each with three tranches of notes, with the only difference between the series being the tenure of coverage.
Everest Re will sponsor a Kilimanjaro III Re Ltd. (Series 2021-1) and Kilimanjaro III Re Ltd. (Series 2021-2) catastrophe bond issuance, with the Series 2021-1 bonds having a four-year term and the Series 2021-2 bonds being a five-year deal, sources told Artemis.
The reasons for this will be two-fold, firstly that Everest Re can stagger its renewals of cat bond protection and secondly that the company can test cat bond fund and investor appetite for the longer-duration covers, potentially allowing it to lock-in retro reinsurance for longer.
So, Kilimanjaro III Re Ltd., a Bermuda SPI, will issue six tranches of notes across the two series, that will be sold to cat bond investors and the proceeds used to collateralize reinsurance agreements between the SPI and Everest Re.
The protection these new cat bonds will afford Everest Re will be for the same perils as other recent Kilimanjaro Re cat bonds, in covering certain losses from named storms and earthquakes impacting the United States, Puerto Rico, U.S. Virgin Islands, D.C., and Canada.
The retrocessional reinsurance protection will on an industry-loss trigger basis and the cat bonds are structured to provide Everest Re with a source of both per-occurrence and annual aggregate reinsurance protection.
So, the Kilimanjaro III Re Ltd. Series 2021-1 issuance (featuring notes ending in 1) will provide four-years of protection to April 2025, while the Series 2021-1 issuance (featuring notes ending in 2) will provide five-years of protection, to April 2026.
The A-1 and A-2 tranches of notes will provide per-occurrence reinsurance protection and each targets $150 million, we understand. These two tranches of notes have an expected loss of 7.21% and being offered to investors with price guidance in a range from 12% to 12.25%.
The B-1 and B-2 tranches of notes will provide annual aggregate reinsurance cover and are targeting $125 million in terms of issuance size each. These two tranches of notes have an expected loss of 1.89% and being offered to investors with price guidance in a range from 5% to 5.75%.
Finally, the C-1 and C-2 tranches of notes will also offer annual aggregate protection and are targeting another $125 million in terms of size, per tranche. These two tranches of notes have an expected loss of 1.57% and being offered to investors with price guidance in a range from 4.75% to 5.5%.
So the total per-occurrence protection target, across the Series 2021-1 A-1 and Series 2021-2 A-2 notes is $300 million.
While the aggregate cover could amount to $250 million across the Series 2021-1 B-1 and Series 2021-2 B-2 notes and another $250 million across the Series 2021-1 C-1 and Series 2021-2 C-2 notes.
Giving a total initial target size for this visit to the catastrophe bond market of $800 million, which could rise given the $950 million of Kilimanjaro Re 2017-1 cat bonds set to mature soon.
Given the “1” notes offer four-year coverage and the “2” notes five-year coverage, we could see Everest Re attempting to maximise the occurrence and aggregate protection from the five-year tranches if it can, to lock in its reinsurance pricing for as long as possible.
With the $950 million of protection from the Kilimanjaro 2017-1 catastrophe bonds set to mature in the next few weeks, there is every chance we see these new 2021 cat bonds upsize and Everest Re look to replace, or even increase, those slices of capital markets backed reinsurance protection.
We will update you as they come to market and you can read about every cat bond transaction ever issued in the Artemis Deal Directory.