A European windstorm catastrophe bond has been launched to the market in the form of a Hexagon Reinsurance DAC (Series 2017-1) issuance, a €90 million transaction which will be the first time that French mutual insurance society Covéa Group has tapped the cat bond market as a source of collateralized reinsurance.
The Hexagon Reinsurance cat bond will cover a range of Covéa Group insurer entities and subsidiaries against losses from European windstorms across a four-year terms, with the covered entities including three named insurers MMA IARD SA, MAAF Assurances SA and GMF Assurances, we’re told.
The Hexagon Reinsurance cat bond will provide €90 million of fully-collateralized reinsurance protection against European windstorms across a covered area that stretches across France, Andorra and Monaco.
The reinsurance protection provided by this Series 2017-1 issuance from Irish domiciles special purpose vehicle Hexagon Reinsurance DAC will be on an indemnity trigger and annual aggregate basis, sources said.
The transaction will be split into two classes of notes, we understand, both €45 million in size and covering a layer of Covéa Group’s reinsurance program of the same size, suggesting the deal size may be fixed and there is no room for the transaction to grow.
A €45 million Class A tranche of Series 2017-1 notes will be issued by Hexagon Reinsurance DAC to cover losses from €110 million to €155 million, giving them an initial attachment probability of 7.57% and an expected loss of 6.75%. This tranche is being offered to investors with coupon pricing in a range from 8.25% to 9%, we’re told.
A €45 million Class B tranche of Series 2017-1 notes will be issued by Hexagon Re to cover a layer from €155 million to €200 million of losses for the sponsoring insurance group, giving them an initial attachment probability of 6.06% and expected loss of 5.52%. As a result these notes are the less risky tranche and so have price guidance of 6.75% to 7.5%, sources said.
Insurance business covered by the Hexagon Reinsurance DAC catastrophe bond include residential property, agricultural, certain industrial and commercial exposures, we understand.
It’s encouraging to see another new sponsor coming to the catastrophe bond market to source efficient reinsurance protection and also encouraging to see a European windstorm exposed transaction, which have been relatively scarce in recent years, due partly to the cheap cost of traditional reinsurance in the region.
The transaction is scheduled to be completed in the next fortnight, we understand and we’ll update you as this Hexagon Reinsurance DAC cat bond comes to market.
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