Italian and global insurance giant Assicurazioni Generali S.p.A. has hailed the successful completion of its first green catastrophe bond issuance, the EUR 200 million Lion III Re DAC transaction.
The deal was launched to the cat bond investor community earlier this month, and benefiting from strong investor demand Generali secured it at attractive pricing, as we’d previously explained.
The company said today that the EUR 200 million cat bond, which is exposed to windstorms in Europe and earthquakes in Italy, is “the first ever ILS issuance that embeds innovative green features in compliance with the Generali Green ILS Framework.”
The company further explained that the, “Lion III Re DAC transaction is the first catastrophe bond embedding green features in accordance with the Generali Green ILS Framework, underlining once more the commitment of the Group in promoting green finance solutions: (i) Generali’s freed-up capital resulting from this transaction will be allocated to green projects, (ii) the collateral will be invested into highly rated green notes issued by the EBRD, (iii) there will be a dedicated reporting of the allocation of freed-up capital in eligible projects as well as EBRD reporting on its Green Projects Portfolio which will be provided. In addition, the primary service providers engaged have shown commitment to a sustainability framework in their business activities.”
Generali had been quick to recognise the potential for insurance and reinsurance linked investments to have green or ESG (environmental, social and governance) credentials more than a year ago, revealing a framework it had developed for Green insurance-linked securities (ILS).
This issuance is the first to follow that framework and marks a first step towards more green catastrophe bond issuance, as similar methods are expected to be followed by other sponsors seeking to make their catastrophe bonds greener and their reinsurance programs more sustainable.
On the pricing, Generali noted that, “Demand from capital market investors has allowed the protection to be provided to Generali at a premium of 3.50% per annum on the € 200 million cover under the reinsurance agreement, which Lion III Re DAC will in turn pay to investors as a component of the interest paid on the notes.”
As we explained, the notes eventually priced with this 3.50% coupon, which is roughly 18% below the initial mid-point of price guidance.
Given the initial expected loss of the notes is 2.99% per annum, this is a very thin multiple-at-market (around 1.17 times EL), suggesting that investors have discounted the notes for their ESG appropriate features.
This may be a reflection of European property catastrophe reinsurance pricing, which is very tight. It’s also worth noting that Generali’s last cat bond only priced with a multiple-at-market of 1.33 times the expected loss.
Generali Group Chief Insurance & Investment Officer, Sandro Panizza, commented, “Generali has proven once more its confidence and proximity to investors as well to traditional reinsurers. This new issuance allows Generali to further optimize the purchase of reinsurance protection, leveraging on the trust of both the traditional reinsurance and the ILS markets in the quality of its portfolio. Investor interest for the notes issued by Lion III Re DAC allowed Generali to achieve a better risk return trade-off for the overall reinsurance programme.”
Generali Group’s CFO, Cristiano Borean, added, “The success achieved with this third catastrophe bond confirms Generali’s well-established presence in the ILS market. This transaction further demonstrates Generali’s innovative approach in implementing its capital management strategy, while integrating sustainability principles into alternative risk transfer solutions. The commitment towards the Generali Green ILS Framework is also a clear confirmation of our sustainability ambition to further support green projects and mobilize all our stakeholders around this objective.”
It’s encouraging to see these green features added to a cat bond, which could serve to expand the range of investors interested in allocating to insurance-linked securities (ILS), such as catastrophe bonds, especially given the wave of demand for ESG appropriate investment opportunities.
We anticipate other sponsors will look to develop their own methods for adding more sustainability to cat bonds and making them a more ESG friendly investment opportunity.