Italian and global insurance giant Assicurazioni Generali S.p.A. has now secured its first green catastrophe bond, the EUR 200 million Lion III Re DAC cat bond, with a roughly 18% price drop from the initial mid-point of guidance.
It’s another example of strong pricing execution in the catastrophe bond market, as deal’s continue to price well-below their initial guidance.
However, the price drop here is aligned with other recent cat bonds from major insurer sponsors, which suggests the market hasn’t added much, if any, additional discount for the unique green features of this catastrophe bond issuance from Generali.
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.
This is considered a “green catastrophe bond” by Generali for three main reasons.
Green cat bond features utilised in this transaction 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.
On the traditional reinsurance side, this Lion III Re green cat bond will provide Generali with EUR 200 million of reinsurance protection against certain losses from European windstorms and Italian earthquakes, on an indemnity trigger and per-occurrence basis.
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 marketed to cat bond investors with spread guidance in a range from 4% to 4.5%.
As we explained last week, the spread subsequently tightened, down to a reduced range of 3.5% to 4%, but now we’re told that the notes have been priced with a coupon at the bottom of that range, of 3.5%.
That represents a roughly 18% drop in price during marketing, from the initial mid-point of guidance.
While that’s a reasonably large decline in price, it isn’t really any higher than other recent cat bonds from some of the larger sponsors.
However, with a multiple-at-market of just 1.17 times the initial expected loss, this is very thin and could be a reflection of low European property catastrophe reinsurance pricing, along with some discounting by investors for the ESG features.