The first catastrophe bond to benefit Security First Insurance Company now looks set to complete at a pared back $75m, but price guidance for the First Coast Re Ltd. (Series 2016-1) cat bond issue has dropped to below the initial range.
Sources said that the transaction, which had been targeting up to $100m of fully collateralised reinsurance protection for the Floridian primary property insurance company Security First, is now targeting an issuance of $75m of notes.
The First Coast Re 2016 cat bond sees global reinsurance firm Swiss Re acting as ceding reinsurer for Security First, its reinsured, in order to provide a multi-year source of reinsurance protection against losses from Florida named storms and severe thunderstorms.
The coverage from the catastrophe bond will benefit Swiss Re directly, but is ultimately based on the indemnity experience of Security First and to provide retrocessional coverage for a reinsurance agreement between the two parties.
The issuance sees a single tranche of Class A notes offering per-occurrence protection, using an indemnity trigger based on Security First’s loss experience, providing reinsurance to the insurer across a three-year term.
While the target size for this First Coast Re cat bond has been reduced from $100m to $75m, the spread guidance for the single tranche of Class A notes has also been reduced to below the initial guidance range, we’re told.
When the cat bond transaction launched to investors it was offering the notes with coupon price guidance of 4.25% to 4.75%, but this has now been lowered and narrowed to 4% to 4.25%, which with the 1.15% expected loss still suggests a multiple of 3.5 times or above.
That’s still a higher multiple than many cat bonds with comparable spreads, which is likely due to the top and drop nature of the protection which enables these cat bond notes to drop down Security First’s protection tower as losses erode its lower layers of reinsurance protection.
The size of the First Coast Re cat bond is likely to be driven by Security First’s overall reinsurance purchase for the upcoming renewal, hence the reduction shouldn’t be considered an inability to place the notes but more likely a reflection of where the most effective pricing can be found.
We understand this cat bond is set to be priced this week and its issuance will be completed by the end of May.