The first catastrophe bond covering risks in China, Panda Re Ltd. (Series 2015-1), has now completed successfully, raising $50m for the sponsor state-owned reinsurance firm China Re, which was the lower end of the sponsors target size for the deal.
The Panda Re 2015-1 cat bond only came to light recently as it has been placed as a private Rule 4(a)(2) transaction for the sponsor. The deal has now been completed we understand, with a single $50m tranche of Series 2015-1 notes having been issued by Panda Re Ltd., a Bermuda domiciled SPI.
The notes will provide sponsoring Chinese state-owned reinsurer China Property and Casualty Reinsurance Company, more commonly known as China Re, with $50m of fully collateralized reinsurance protection against losses from earthquakes in China.
Coverage is on a per-occurrence basis and the Panda Re 2015-1 cat bond utilises an indemnity trigger. At this time we cannot confirm the layer attachment points, where the coverage has been placed, but we’re told it is still at 2.1 billion Chinese Yuan. See the Panda Re deal directory entry for more details.
Sponsor China Re had been targeting between $50m and $70m of protection, with $70m being its preferred figure we understand. However at completion the cat bond only raised the $50m lower end. This isn’t really surprising given this is the first Chinese cat bond, particularly as it features an indemnity trigger.
Investors undertook their own risk modelling for the Panda Re cat bond, being a private Rule 4(a)(2) deal. This may have narrowed the potential field of investors quite considerably, as not all will have been sufficiently comfortable with a new risk to perform their own analysis with no third-party risk modellers report available.
That may have reduced the available pool of capital for such a deal, despite the clear diversification benefits it offers to ILS fund managers.
The $50m of notes issued by Panda Re have been listed on the Bermuda Stock Exchange and we understand that these notes will have secondary marks and therefore will be transferable. It will be interesting to see how these price over time, as they could become an in-demand cat bond investment due to the unusual nature of the risk.
The Panda Re 2015-1 cat bond notes come into force today, we understand and we’re classing the transaction as a July issuance as a result and given the late emergence of the deal in Q2.
It’s encouraging to see this first Chinese cat bond complete successfully. It could open up a new market and a new diversifying peril, which asset managers in the ILS space would welcome.
The potential deal-flow from China in years to come could be significant, given the high catastrophe exposure and massive economic losses that the country suffers. As insurance penetration rises in China this deal could help to position the capital markets as an effective source of risk transfer.