The recent completion of the Galileo Re Ltd. catastrophe bond, which saw demand from investors boost its size by 71% while at the same time pushing down pricing , shows the insurance-linked securities (ILS) markets continued appetite for catastrophe risk, according to Willis Capital Markets & Advisory (WCMA).
The Galileo Re cat bond offering increased in size twice while being marketed, having launched as a $175m offering of notes, which was subsequently increased to $250m, before being increased again to $300m as investors showed their desire to deploy capital into new cat bond notes.
The demand from investors was not just demonstrated by the size of the eventual single tranche of notes sold by Galileo Re. The pricing also told a story, as it dropped to 7.4%, well below the originally marketed range of 7.75% to 8.5% bringing the larger amount of cover (71% larger) to Catlin at a rate which was 9% cheaper than the mid-range the notes launched at.
A successful issuance for Catlin then and a successful transaction for Willis Capital Markets & Advisory who as the transactions sole structuring agent and bookrunner placed the transaction with investors.
The Galileo Re deal, which is Catlin’s fourth catastrophe bond issuance, after Bay Haven Ltd. in 2006, Newton Re Ltd. in 2007 and Newton Re Ltd. (Series 2008-1) in 2008, provides it with $300m of protection against U.S. Named Storms, U.S. and Canada Earthquakes and European Windstorms over a three-year risk period.
The notes utilise a PCS and PERILS based industry loss trigger and the protection it affords Catlin and its subsidiaries is on an annual aggregate basis.
WCMA increasingly features on large catastrophe bond transactions, particularly with sponsors who it has a long brokerage relationship with.
Tony Ursano, CEO of Willis Capital Markets & Advisory commented; “We are committed to continuing to build our insurance-linked securities (ILS) franchise and assist sponsors in accessing capital markets capacity. We are very proud to have been chosen to work on this transaction and we were delighted to have been able to deliver a world class execution for Catlin, a best in class sponsor and long standing Willis relationship.”
The way Galileo Re increased in size so significantly, while providing the cover cheaper through a drop in price, shows that investors are still primed and ready to allocate capital to support catastrophe risk transactions at lower rates than traditional reinsurance typically provides.
Investors remain well capitalised, with many reporting capital waiting on the sidelines, meaning that any other cat bond deals issued this year stand a strong chance of coming in at very attractive rates for their sponsors.
Urasano stated; “The level of investor demand for the deal is a testament to the markets’ continued appetite for a diverse range of catastrophe risk.”
Read our article from Thursday which discusses the size of the catastrophe bond market now Galileo Re has completed: Galileo Re takes 2013 catastrophe bond issuance to $6.54 billion.