At issuance, the upsized by 50% $150 million 3264 Re Ltd. (Series 2020-1) international multi-peril catastrophe bond transaction brought to market by global reinsurance firm Hannover Re saw its pricing settle at the bottom-end of already reduced guidance, reflecting a roughly 6% fall while marketing.
This transaction may not be a retrocessional reinsurance cat bond offering protection specifically for Hannover Re’s benefit.
Rather it may be another case where the reinsurance firm is acting as a cedent or sponsor of the transaction, for the benefit of one of its reinsurance clients.
Hannover Re often positions itself as a fronting or cedent intermediary, sitting between its clients and capital market investors, to help in access catastrophe bond backed reinsurance capacity. While sometimes we know who the beneficiary is, for cat bonds fronted by Hannover Re, with 3264 Re Ltd. the name of the ultimate beneficiary remains unknown to us.
Investor demand then helped the issuance to upsize by 50% to $150 million while price guidance fell, maximising the capital market opportunity for the beneficiary and increasing the reinsurance protection this deal will provide to it via Hannover Re.
The deal is now complete and the 3264 Re Ltd. SPI vehicle in Bermuda has now issued its single tranche of $150 million of Series 2020-1 Class A notes, which have been sold to cat bond investors and the proceeds used to collateralise the underlying retrocessional reinsurance agreement between 3264 Re Ltd. and Hannover Re itself.
Hannover Re then passes on this coverage to the beneficiary through a direct reinsurance agreement between the pair, we assume.
The reinsurance protection covers certain losses from multiple international perils, specifically U.S. named storm risks, U.S. and Canadian earthquake risks and European windstorm risks, on an industry loss trigger and annual aggregate basis across a three-year term.
The $150 million of of 3264 Re Ltd. Series 2020-1 Class A notes, with their initial expected loss of 4.04% at the base case, were initially offered to cat bond investors with coupon price guidance in a range from 10% to 10.75%.
That pricing then tightened and the range fell, resulting in the notes subsequently being offered with revised guidance of 9.75% to 10%.
We now understand that at final pricing the $150 million of notes being issued by 3264 Re Ltd. settled to offer investors a coupon of 9.75%, so at the bottom of the revised guidance range.
That represents a roughly 6% decline in pricing from the original guidance midpoint.
The execution of this catastrophe bond issuance seems to have delivered a positive result for the ultimate beneficiary, thanks to the upsized amount of notes issued by 3264 Re and the reduced pricing, whether that beneficiary be Hannover Re itself or one of its clients.
Hannover Re’s activity in the insurance-linked securities (ILS) market sees the firm acting as one of the key facilitators for ceding companies to access efficient sources of capital markets funding for their reinsurance programs.
This helps Hannover Re to become an even more significant partner for its clients, as it can martial more capital for them and assist them in diversifying out their reinsurance programs, while the reinsurer also earns fees for its services and use of its balance-sheet as a front.