Global insurance and reinsurance company Everest Re is back in the catastrophe bond market, seeking $250 million or more in industry loss based aggregate retrocession, through a new Kilimanjaro III Re Ltd. (Series 2022-1) transaction.
It’s Everest Re’s first visit to the catastrophe bond market since April 2021 when the company sponsored two series of Kilimanjaro Re III cat bond notes, securing itself $650 million of new catastrophe retro reinsurance protection in the process.
This year, Everest Re is being a little less ambitious it seems, with a simpler single series and tranche approach, to securing annual aggregate coverage for major peak peril catastrophe loss events.
Kilimanjaro III Re Ltd., Everest Re’s most recent catastrophe bond issuing Bermuda SPI, will issue a single tranche of Series 2022-1 notes, that will be sold to cat bond investors and the proceeds used to collateralize a retrocessional reinsurance agreement between the SPI and Everest Re.
This new Kilimanjaro cat bond will provide Everest Re with coverage against certain losses from named storms and earthquakes that impact the United States, Puerto Rico, U.S. Virgin Islands, D.C., and Canada.
The retrocessional reinsurance protection will be on an industry-loss trigger basis and the cat bonds are structured to provide Everest Re with a source of annual aggregate retro reinsurance protection.
The $250 million or more of notes will provide three years of protection, which is a little less ambitious than previous cat bonds that have provided Everest Re with four and five year term cover.
We’re told that the cat bond’s expected loss is weighted roughly one-third quake, to two-thirds wind.
Of the earthquake component California is the dominant source of risk, at 60%. While on the wind risk side, Florida is approximately 35% of the exposure, we understand.
The notes will have an initial attachment point of a $6 billion industry loss, exhausting at $8.782 billion, after an $800 million franchise deductible is applied. That gives an initial attachment probability of 1.43% and an initial expected loss of 0.9%.
The notes are being offered to cat bond investors with initial price guidance of 5% to 5.5%, we’re told.
We also understand that there is an inflationary factor to this cat bond, with an inflation reporting agency that will apply an inflation factor to each industry loss. Given the high-inflationary economic environment this could be an interesting and helpful approach.