Another catastrophe bond has been priced at the bottom end of an already reduced spread range, as sponsor Assicurazioni Generali S.p.A. has secured its latest catastrophe bond, the Lion II Re DAC European flood exposed transaction, at a very competitive rate.
Yesterday we wrote that the suggested coupon had fallen below the initial launch price guidance for the Lion II Re cat bond, as ILS investors demonstrated their comfort with the first Euro flood indemnity triggered bond.
In that article we also explained that the flood component is actually the smallest contributor to the cat bond’s expected loss, while the other two covered perils of European windstorm and Italian earthquake risk are particularly keenly priced in the traditional reinsurance market right now, meaning this cat bond would have to be priced extremely competitively.
It’s clear now that ILS and cat bond investors were ready to support this transaction and the pricing has fallen to the bottom end of the already reduced guidance. Meanwhile the deal did not upsize, remaining at EUR 200 million.
At launch, the EUR 200 million of notes issued by Lion II Re, which have an initial expected loss of 2.24%, were marketed to ILS investors with coupon guidance in a range from 3.5% to 4%, a range that then fell to a spread guidance of 3% to 3.5%.
Now the Lion II Re cat bond has been priced at the lowest end, of 3%, making this transaction one of the lowest multiple deals for that level of expected loss we have ever seen, at 1.33 times the EL of 2.24%.
Such a low multiple suggests that investors understood that the flood exposure is a minor contributor to the expected loss, while the main contributor of Italian quake risk would actually require a really major event to trigger the bond, given the dearth of earthquake insurance penetration in the region.
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