Everest Re’s new Kilimanjaro III Re cat bond set for $650m

Global insurance and reinsurance firm Everest Re now looks set to secure $650 million of fully-collateralized retrocessional reinsurance protection from its latest visit to the catastrophe bond market.

As we explained last month, Everest Re had returned to the catastrophe bond market seeking support from insurance-linked securities (ILS) investors for a potential $800 million issuance of two series of Kilimanjaro III Re Ltd. 2021 cat bonds.

Everest Re is sponsoring 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 designed to provide five-year protection.

However, it looks like the company will settle for a smaller issuance, of $650 million of notes across the two series and six tranches of cat bond notes being issued by its Bermuda SPI named Kilimanjaro III Re Ltd.

Sources told us that the reinsurance protection from the Series 2021-1 bonds, with a four-year term, is likely to amount to $320 million, while the protection from the Series 2021-2 bonds, with a five-year term, is likely to be slightly greater at $330 million.

As it currently stands, Kilimanjaro III Re Ltd. will issue the six tranches of notes across the two series, with $650 million in total to be sold to cat bond investors and the proceeds used to collateralize reinsurance agreements between the SPI and Everest Re.

These new cat bonds will provide Everest Re with protection 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 is structured on an industry-loss trigger basis, while the cat bonds will provide Everest Re with a source of both per-occurrence and annual aggregate reinsurance protection.

The Kilimanjaro III Re Ltd. Series 2021-1 issuance, which will provide four-years of protection to April 2025, is now made up of $150 million of A-1 notes providing per-occurrence protection, as well as $85 million of B-1 notes and $85 million of C-1 notes providing annual aggregate protection, for total coverage of $320 million.

The Kilimanjaro III Re Ltd. Series 2021-2 issuance, which will provide five-years of protection to April 2026, is now made up of $150 million of A-2 notes providing per-occurrence protection, as well as $90 million of B-2 notes and $90 million of C-2 notes providing annual aggregate protection, for total coverage of $330 million.

The A-1 and A-2 tranches of per-occurrence notes have an expected loss of 7.21% and were first offered to investors with price guidance in a range from 12% to 12.25%. This price guidance has now been lowered to 11.25% to 12%.

The B-1 and B-2 tranches of notes have an expected loss of 1.89% and were first offered to investors with price guidance in a range from 5% to 5.75%. The price guidance for these tranches of notes have also been lowered to 4.5% to 5%.

Finally, the C-1 and C-2 tranches of notes which have an expected loss of 1.57%, were first offered to investors with price guidance in a range from 4.75% to 5.5%. Again, the price guidance for these tranches of notes has also dropped to 4.25% to 4.75%.

So, while the targeted size of these Kilimanjaro Re catastrophe bonds has reduced somewhat, the pricing looks set to come in at attractive levels for Everest Re, with all the guidance being lowered.

If the tranches remain the sizes our sources say they have been reduced to, Everest Re will gain $300 million of per-occurrence reinsurance protection from these issues, half on a four-year basis and half on a five-year basis, as well as $350 million of annual aggregate reinsurance, $170 million over a four-year term and $180 million across a five-year term.

It’s worth noting that Everest Re has $950 million of retrocessional reinsurance protection from its April 2017 issued Kilimanjaro II Re Ltd. (Series 2017-1) catastrophe bonds set to mature in April 2021.

So this new issue is not set to replace that cover, but given where reinsurance rates and pricing now sit, it would not be surprising if Everest Re wanted to retain more and down-sized its protection a little at this time.

These Kilimanjaro III Re Ltd. (Series 2021-1) and Kilimanjaro III Re Ltd. (Series 2021-2) catastrophe bond transactions are scheduled for issuance around mid-April.

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.