Hannover Re targets $200m seventh Acorn Re parametric US earthquake cat bond

Global reinsurance firm Hannover Re is bringing the seventh catastrophe bond offering in the annual parametric US earthquake risk series of deals, with an initial $200 million target for an Acorn Re Ltd. (Series 2026-1) issuance, Artemis has learned.

As seen with all six of the previous Acorn Re parametric catastrophe bonds, this new seventh issuance from the special purpose insurer is being brought to market by Hannover Re, acting as the ceding reinsurance company, sitting in front of and providing protection to a single named ceding insurer, Oak Tree Assurance Ltd. while also sourcing additional protection to cover other reinsurance deals it has entered into in the subject area.

Acorn Re parametric earthquake cat bonds have now come to market four years in a row, as this deal becomes a regular and annual feature of this time of year. Read about all seven in our catastrophe bond Deal Directory here.

Oak Tree Assurance is the Vermont-based workers compensation captive insurer of the Kaiser Permanente group of health plan companies and has been a beneficiary of all now seven of the Acorn Re cat bonds protection.

Once again, this is a U.S. west-coast focused parametric earthquake catastrophe bond, providing reinsurance coverage to the Kaiser Permanente workers compensation captive, covering its insured exposure to earthquake risks across that region (largely centred on California).

Just like the six Acorn Re cat bond deals to come before, this new Acorn Re 2026-1 issuance will also provide protection to cover other Hannover Re reinsureds, that have exposure within the parametric earthquake boxes should a major quake event occur.

Bermuda-based special purpose insurer (SPI) Acorn Re Ltd. is offering a single Series 2026-1 Class A tranche of cat bond notes, with the initial offering size being $200 million, sources have told us.

The $200 million of Acorn Re Series 2026-1 Class A notes will be sold to cat bond investors and the proceeds of that sale be used to collateralize underlying retrocessional reinsurance agreements between Acorn Re and Hannover Re.

Hannover Re in turn then enters into reinsurance agreements with the Kaiser Permanente captive, Oak Tree Assurance, while also using the protection for itself, to cover any losses to its other reinsureds that have exposure in the parametric box, we understand.

The currently $200 million of Acorn Re 2026-1 Class A cat bond notes will provide the covered parties, Kaiser Permanente via the Oak Tree Assurance Ltd. workers compensation captive, and the other reinsureds of Hannover Re, with a multi-year source of per-occurrence based parametric reinsurance protection against earthquakes that strike the U.S. west coast region, with that protection funded by the capital markets.

We are told the notes will have a three year term, running across annual risk periods that begin from November 1st 2026 to the end of October 2029.

Just like previous Acorn Re cat bond deals, the main focus of the parametric reinsurance protection remains earthquakes in California. Again like the previous deals, the covered region in the parametric box structure also includes similar west-coast US states, so covering events that occur in the surrounding states of Oregon, Washington, Nevada, Utah, Arizona, British Columbia in Canada, as well as Baja California and Sonora states in Mexico, as well as certain offshore areas of the Pacific.

California again provides the majority of the exposure on an expected loss basis, with southern California alone making up around 72%, we are told. While the San Andreas faults are also the largest contributor to expected loss, at more than half across the north, south and central branches of that fault.

The parametric trigger is designed to provide a sliding scale payout structure, meaning different payout percentages are possible depending on the magnitude and location of earthquake loss events, starting at a 25% payout as a minimum, sources explained.

The $200 million tranche of Acorn Re 2026-1 Class A notes on offer have an initial attachment probability of 0.96%, an initial expected loss of 0.78% and are being offered to cat bond investors with price guidance for an initial risk interest spread of between 2% to 2.25%.

We can compare that to the Acorn Re 2025-1 cat bond from roughly one year ago, which had an initial expected loss of 0.96% and priced to pay investors a spread of 2.35%.

The new 2026-1 notes would have a multiple of 2.72 times the expected loss at the mid-point of their price guidance, while the 2025-1 notes priced to pay a multiple of 2.45 times expected loss last year.

Which is interesting, given the softer reinsurance pricing environment we see today. But there are limits and just because this new cat bond has a lower initial expected loss, does not necessarily mean investors will accept the same multiple or lower than a year ago. Investors have minimum return targets and catastrophe bonds with very low spreads can often price with slightly higher multiples to help get the deals over the line.

Finally, the $150 million Acorn Re 2023-1 catastrophe bond is scheduled for maturity this November and so it is encouraging to see this new 2026-1 cat bond coming out larger with a $200 million target, as it shows the desire of the cedents to keep growing this parametric reinsurance program.

You read all about this new Acorn Re Ltd. (Series 2026-1) transaction and every other catastrophe bond in the Artemis Deal Directory.