Global reinsurance firm Hannover Re is continuing to seek out a $100 million source of collateralised retrocessional reinsurance from its new 3264 Re Ltd. (Series 2022-1) catastrophe bond deal, but we’re told that the price guidance has been lifted to above the initial range.
Hannover Re returned to the catastrophe bond market ten days ago (as we explained at the time) with what will be the second catastrophe bond from the reinsurance firm’s Bermuda special purpose insurance vehicle 3264 Re Ltd.
The size hasn’t changed over the ten days this cat bond has been in the market, with 3264 Re Ltd. still seeking to issue a single $100 million or greater tranche of Series 2022-1 Class A notes.
But we’re told that in order to satisfy cat bond investor return requirements, the coupon pricing on offer has been lifted for the notes.
We’ve been seeing and hearing increasing evidence that cat bond fund managers and investors are beginning to hold the line on pricing, feeling that some new issues are pushing below risk adequate returns.
With Hannover Re’s latest cat bond, as it seeks aggregate retrocession and that market has been so impacted by catastrophe losses of late, this is perhaps no surprise.
The still $100 million tranche of notes that 3264 Re Ltd. aims to issue will provide Hannover Re with a multi-year source of annual aggregate retro reinsurance, covering losses from U.S. named storms, thunderstorms, wildfires and winter storms, as well as U.S. & Canada earthquakes, European windstorms, Caribbean earthquakes, Japan typhoons and earthquakes, Italy earthquakes, Turkey earthquakes, Australian cyclones and earthquakes, and New Zealand earthquakes.
It’s a particularly wide-ranging, global peak peril issuance, designed to provide Hannover Re with broad aggregate retro protection across a roughly three year term to January 2025.
The still $100 million tranche of Class A notes have an initial attachment probability of 14.27% and an expected loss of 7.95%.
They were at first offered to cat bond investors with price guidance in a range from 17.5% to 18.5%, but we’re now told that the guidance has narrowed and been lifted to above that initial range, with the coupon now offered at between 18.5% and 19%.
It does seem that cat bond pricing may have reached the bottom at this stage, as investor appetite to hold up returns and not pressure them too much persists.
This is likely also being stimulated by where the end of year reinsurance renewals are heading, in terms of price trajectory, as the cat bond market will also be eager to benefit from what firming of rates is available.