Google and its holding company parent Alphabet, Inc. have now successfully secured $275.5 million of California earthquake risk protection from their new catastrophe bond, the Phoenician Re Ltd. (Series 2021-1) issuance.
It’s fallen a little short of the revised top-end target of $285 million, but with pricing at a much lower multiple than Google’s previous catastrophe bond issues.
Google’s parent company Alphabet came back to the catastrophe bond market around mid-November 2021, with the tech giant looking to add another $250 million or more in California earthquake risk protection to its insurance arrangements, through the tapping of insurance-linked securities (ILS) investors.
This is the third Phoenician Re series of notes to be issued for the benefit of Google and Alphabet.
First was the Phoenician Re Ltd. (Series 2020-1) transaction in early December 2020, which secured the tech firm $237.5 million of California earthquake insurance protection.
That was quickly followed up by the second Google catastrophe bond, a $95 million Phoenician Re Ltd. (Series 2020-2) transaction that expanded the same insurance coverage layer for the tech giant.
Encouragingly, Google continues to look to build out the capital market and ILS fund participation in its insurance tower that the tech company receives thanks to its catastrophe bonds, with this latest deal set to wrap around and sit alongside the previously issued series of cat bond notes.
Phoenician Re Ltd., Google’s Bermuda-based special purpose insurer, originally targeted an issuance of $250 million or more Series 2021-1 tranche of notes.
The upsizing was successful, with the single tranche cat bond now fixed at $275.5 million, but the top-end target was not achieved, suggesting there were limits to investor appetite at the desired pricing.
So now, $275.5 million of Phoenician Re 2021-1 notes will be sold to collateralize reinsurance agreements that will ultimately cascade down to provide California earthquake insurance coverage to Alphabet and its Google entities.
Global reinsurance company Hannover Re is again fronting and transforming the earthquake risk for the tech giant, entering into retrocessional agreements with the SPI Phoenician Re, then into reinsurance agreements with Alphabet’s Hawaii domiciled captive insurer Imi Assurance, which in turn will provide the insurance protection to Alphabet.
The $275.5 million Phoenician Re Ltd. cat bond will provide Alphabet and its Google operations with a three year source of California earthquake insurance protection, on a per-occurrence basis and using an indemnity trigger.
The now $275.5 million of Series 2021-1 Class A notes that Phoenician Re will issue have an initial expected loss of 0.51% and were first offered to cat bond investors with price guidance in a range from 2.25% to 2.75%. That pricing tightened to the mid-point, at 2.5%, which is where the cat bond is now going to settle, we understand.
It’s offering investors a relatively high multiple-at-market, of just under 5 times the expected loss.
But, it’s a much lower multiple than the previous two Google catastrophe bonds, although still commensurate with how other California quake issues have priced from the likes of the CEA.
The 2020-1 cat bond priced at 3% for an expected loss (EL) of 0.33%, so a multiple of 9 times the EL, while the 2020-2 cat bond priced at 2.9% for an initial expected loss of 0.247%, so a multiple of 11.7 times the EL.
So this is quite a result for Google, with a higher risk cat bond, on an expected loss basis, pricing below the coupon on its previous two, lower-risk deals from only a year ago.
Which definitely reflects a softening of cat bond pricing over 2021, but also likely reflects the fact Google’s insurance tower is now increasingly familiar to catastrophe bond funds and investors, resulting in improved execution for the company.