Italian and global insurance giant Assicurazioni Generali S.p.A. is aiming to secure its first green catastrophe bond deal, the EUR 200 million Lion III Re DAC cat bond, at tighter spreads, as price guidance has fallen for the issuance.
This is Generali’s first catastrophe bond since 2017 and the first we’ve seen to have a number of specific green credentials, as the insurer looks to bring greater sustainability to cat bond issues and make the resulting investment more ESG appropriate for investors.
With the Lion III Re green cat bond, Generali is aiming to secure EUR 200 million of reinsurance protection against certain losses from European windstorms and Italian earthquakes, on an indemnity trigger and per-occurrence basis.
That size has not changed, as we understood from the start this was not a cat bond that would upsize. But the pricing has dropped, in-line with the majority of catastrophe bonds issued over the last few months.
The EUR 200 million of green cat bond notes to be issued by Lion III Re DAC will have an initial expected loss of 2.99% and were first offered to cat bond investors with spread guidance in a range from 4% to 4.5%.
We’re told that the spread has tightened, down to a reduced range of 3.5% to 4%, which represents a roughly 12% decline in pricing at the mid-points.
As a reminder, this is considered a “green catastrophe bond” by Generali for three reasons.
The green cat bond features are: that the deal will free up an equivalent amount of capital from Generali’s own balance-sheet to be used for projects as specified in the green ILS framework; that the collateral will be invested specifically into green bonds issued by the EBRD; and that related to reporting on the projects Generali will allocate balance-sheet capital to and the EBRD’s green bond reporting.
It’s encouraging to see investor appetite strong for this green cat bond from Generali.
However, it’s worth noting that, while the price tightening is not as significant as seen in other recent catastrophe bond deals, the multiple offered looks set to be very low for this cat bond, suggesting the market has perhaps discounted the notes for having “green” features.
Of course, whether green on not, the risk embedded in the cat bond should be what is priced for, not necessarily the fact it has stronger ESG credentials than any other transaction.
In this case the low multiple suggested perhaps reflects 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.