Hexagon Re cat bond coupon settles at bottom of reduced guidance


The coupon spread for the €90 million Hexagon Reinsurance DAC (Series 2017-1) catastrophe bond issuance, sponsored by French mutual insurance society Covéa Group, has now been fixed at the bottom end of the already reduced price guidance range, according to sources.

The Hexagon Reinsurance catastrophe bond will provide mutual insurance society Covéa Group and its subsidiaries with a fully-collateralized, capital markets backed source of reinsurance capacity, across a four-year term.

It’s the first cat bond to be sponsored by Covea and with this issuance the company has now locked in what appears to be attractive pricing for a portion of its reinsurance needs with the help of the capital markets and ILS fund investors.

The Hexagon Re cat bond deal will provide Covea with EUR 90 million of European windstorm reinsurance coverage extending across France, Andorra and Monaco on an indemnity trigger and annual aggregate basis, structured into two equally sized EUR 45 million tranches that sit one on top of the other.

The €45 million Class A tranche of Series 2017-1 notes will cover Covea’s losses from an attachment point of €110 million to €155 million, giving the notes an expected loss of 6.75% and making them the riskier layer of this cat bond issuance.

This Class A tranche was launched with coupon pricing in a range from 8.25% to 9%, which was subsequently reduced to 8% to 8.25% during the marketing of the deal. We’re told the coupon has now been fixed at 8%, so the bottom of the already reduced guidance range.

The €45 million Class B tranche of Series 2017-1 notes sits above the A notes, attaching at €155 million and covering Covea’s losses up to €200 million, giving the notes an expected loss of 5.52%.

The Class B tranche launched with price guidance of 6.75% to 7.5%, which was then reduced to 6.5% to 6.75%. This tranche has also seen its coupon settle at the bottom end of the reduced range and will pay investors 6.5%, we’re told.

The coupon for both tranches likely makes some allowance for the use of IBRD notes as collateral investment, but still implies attractive pricing and reflects ILS and cat bond investor willingness to support Covea’s reinsurance needs at the low-end of a reduced price guidance range.

The coupon this cat bond will now offer is another clear reflection of the appetite and willingness of the capital markets to assume European windstorm risks, resulting in this lower than launched pricing of the notes.

This Hexagon Re cat bond is now set for launch at these pricing levels, with completion and settlement slated for the end of this week we believe.

You can read all about the Hexagon Reinsurance DAC (Series 2017-1) transaction and every other catastrophe bond in the Artemis Deal Directory.

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