U.S. specialty insurer Assurant is returning to the catastrophe bond market for what will be its fourth issuance under an Ibis Re named issuer, we understand. The transaction, Ibis Re II Ltd. (Series 2013-1) sees Assurant hoping to secure a multi-year source of fully-collateralized U.S. hurricane protection for certain named subsidiary companies.
Ibis Re II is Assurants Cayman Islands domiciled special purpose insurer which it established in 2012 and used for the issuance of a $130m U.S. wind cat bond Ibis Re II Ltd. (Series 2012-1) last year. The 2013-1 issuance sees Assurant looking to expand its capital markets reinsurance protection for U.S. hurricane through three tranches of cat bond notes.
The Ibis Re II 2013-1 cat bond is split into three tranches and is being marketed as offering $175m of notes, we understand from our sources. All three tranches are exposed to the same U.S. hurricane risk, across the main U.S. wind exposed states and also Puerto Rico.
The cat bond will use an interesting reporting agency, one which is not utilised particularly often in the market, the Verisk Catastrophe Index. This means the trigger will be a county-weighted industry loss index. Assurant will benefit from the cover on a per-occurrence basis.
The Ibis Re 2012-1 cat bond was the first we have recorded in our Deal Directory to use the Verisk Catastrophe Index. The Verisk catastrophe index reports, through which the industry loss data is reported, show insured losses on a county level multiplied by predetermined county payout factors (weighting) for personal, commercial and auto lines of business.
Verisk is the parent company to PCS, more often the provider of reporting data for an industry-loss based cat bond, so it is a known factor in the cat bond market despite only having been used once before in a cat bond transaction we are aware of. However the Verisk county-weighted, line of business based approach to loss reporting clearly suits Assurants portfolio, hence utilising it again. For this deal the trigger is based on personal line of business losses only.
We understand that the three tranches of notes are all relatively focused on Florida hurricane risk, with the state of Florida making up the largest contribution to the expected losses of each tranche.
The Class A tranche of notes, which we understand to be marketed as the largest at $100m, have an attachment probability of 0.79% and an expected loss of 0.73%. The Class B notes, said to be $35m in size, have an attachment probability of 2.02% and an expected loss of 1.35%. The Class C notes are riskiest, sized at $40m, have an attachment probability of 4.12% and an expected loss of 2.98%.
Having three tranches of notes in this deal will be appealing to investors as a there is a range of risk and return profiles on offer. We don’t have details of the interest spread being offered for each tranche yet, we hope to bring that to you in the coming days, but given the low spreads on some recent cat bonds it will be interesting to see how the spreads compare to last years Ibis Re 2012-1 deal. The Class C tranche has a high expected loss, so should offer a reasonably high coupon, and this could make it popular with some investors seeking better returns.
We understand that the deal is being brought to market by Aon Benfield Securities, Swiss Re Capital Markets and Goldman Sachs, while AIR Worldwide are providing risk modelling services.
It is interesting to see this deal come to market after the start of the U.S. hurricane season, as most years issuance of U.S. wind cat bonds ceases once the season begins. Clearly the appetite among investors has changed and they are now much more accepting of new hurricane cat bonds even during the month of June.
It is possible that Assurant wanted to wait until after the June renewals, so it could establish whether securing this layer of its reinsurance protection through the capital markets would be cheaper.
That’s all the information we have on this deal for now. We hope to be able to bring you more details on the Ibis Re II Ltd. (Series 2013-1) cat bond as it comes to market and you can find the details, which will be updated as more become available, in our catastrophe bond Deal Directory.