The new international multi-peril 3264 Re Ltd. (Series 2020-1) catastrophe bond transaction that is being sponsored by global reinsurance firm Hannover Re looks likely to upsize by 50% to become a $150 million issuance.
We also understand that this may not be a retrocession cat bond specifically for Hannover Re’s benefit, as we’d originally suggested it might be.
Rather it may simply be another cat bond where the reinsurance firm is acting as a cedent or sponsor for the deal on behalf of one of its reinsurance clients.
Hannover Re often acts as fronting or a cedent intermediary to help its clients access the capital markets for reinsurance capacity. It’s possible this is the case with 3264 Re Ltd., although we don’t know who the ultimate beneficiary is at this time.
Now, we understand that this is likely to increase in size by 50% to $150 million, based on the latest deal updates, our sources said.
Newly registered Bermuda special purpose insurance vehicle 3264 Re Ltd. will issue a single tranche of now $150 million Series 2020-1 notes, which will be sold to cat bond investors and the proceeds used to collateralise an underlying retrocessional reinsurance agreement between 3264 Re Ltd. and Hannover Re itself.
This agreement will cover 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.
Pricing has also tightened and dropped for these cat bond notes thanks to investor demand, we understand.
The now $150 million of of 3264 Re Ltd. Series 2020-1 Class A notes, which have an initial expected loss of 4.04% at the base case, were at first offered to cat bond investors with coupon price guidance in a range from 10% to 10.75%.
We’re now told that this pricing range has dropped and been narrowed to 9.75% to 10%, so potentially below the initial range or, at the least, at the lowest-end of it.
As a result, it looks like the execution of this catastrophe bond issuance will prove positive for the ultimate beneficiary, be that Hannover Re itself or a client it is working for.