A new private catastrophe bond transaction has been completed with the assistance of German reinsurance giant Hannover Re. The $20 million Seaside Re (Series 2018-1) private cat bond, or cat bond lite as they are often termed, was issued using Hannover’s Kaith Re Ltd. Bermuda domiciled segregated accounts vehicle.
Hannover Re acts as a service provider for ceding companies seeking to access capital markets capacity, and ILS investors or funds to transform risks into private cat bond notes, securitising reinsurance risks using its Kaith Re vehicle.
This is the second Seaside Re private cat bond placement, following a much larger $86.5 million Seaside Re (Series 2017) placement consisting of three series of tranches, reflecting individual transactions, that was completed roughly a year ago.
For this 2018 issuance, the reinsurance vehicle Kaith Re Ltd. acted on behalf of its segregated account named Seaside Re to issue one $20 million tranche of Series 2018-1 private cat bond notes. The notes have been issued pursuant to the Seaside Re bond program which was established and listed with the 2017 transaction.
The single $20 million tranche of Series 2018-1 notes issued by segregated account Seaside Re are due January 15th 2019, so represent a one year collateralized reinsurance or industry loss warranty (ILW) transaction, as are most common with private cat bonds.
The Seaside Re bond program defines the covered perils as being U.S. property catastrophe risks, but further details of the exact nature of this transaction and the reinsurance or retrocessional coverage it provides are unavailable at this time.
The single $20 million tranche of notes issued by Seaside Re in this 2018-1 transaction have been admitted for listing on the Bermuda Stock Exchange (BSX) as Section V – Insurance Related Securities and have been placed with qualified investors.
Private cat bond deals such as this typically either help a sponsor to access an investor that requires a securitised note as the output of a collateralized reinsurance transaction, or ILS funds and investors to access reinsurance risks in securitised form. Hence the sponsor can provide what the investor requires, while the ILS investor can participate in the reinsurance transaction and receive an asset that meets its mandate and needs for a fully securitised ILS note, rather than a collateralised reinsurance contract.
Hannover Re plays a role in these transactions that could otherwise have bypassed the traditional reinsurer entirely, gaining fee income by acting as a transformer, fronting reinsurer or facilitator for ILS deals and private cat bond note issues, using the cells of its Bermuda segregated accounts insurer Kaith Re.
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