Swiss Re Insurance-Linked Fund Management

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ICAT’s Buffalo Re cat bond grows to $164.5m as pricing drops


ICAT Syndicate 4242 first catastrophe bond, Buffalo Re Ltd. (Series 2017-1), appears to have been well-received by insurance-linked securities (ILS) investors, helping the transaction to increase in size to $164.5 million while marketing, as price guidance dropped at the same time.

Lloyd’s of London syndicate ICAT 4242 is the first to tap the capital markets for a source of fully collateralised reinsurance protection for some years, as the property catastrophe focused underwriter sponsors its first full cat bond issue.

ICAT’s Buffalo Re 2017-1 catastrophe bond transaction, which launched to the market in February, sees it looking to secure a fully collateralised source of reinsurance protection against losses from certain qualifying U.S. named storms and U.S. earthquakes, over a three-year risk period.

The Buffalo Re cat bond features an indemnity trigger and will cover ICAT Syndicate 4242’s losses on a per-occurrence basis, while the two layers of coverage are structured with a drop-down feature (more details in our previous article).

The transaction launched with Buffalo Re aiming to offer investors $125 million of Series 2017-1 notes, through a $70 million Class A tranche and $50 million Class B tranche of notes.

We’re told that the latest deal update today shows that the Buffalo Re 2017-1 cat bond issuance has upsized by almost 32%, to now offer investors $164.5 million of notes.

The Buffalo Re 2017-1 Class A tranche of cat bond notes has grown to $105 million in size, we understand, while the Class B tranche has increased to $59.5 million.

At the same time the coupon price guidance has been reduced on both tranches to levels at or below the initial launch spread guidance range.

The now $105 million of Class A notes were initially offered to investors with price guidance of 3.25% to 3.75%, but this has now been reduced to the lower end at 3.25%.

Meanwhile, the now $59.5 million of Class B notes, that were initially offered with guidance of 7.25% to 7.75%, have seen their pricing fall even further with the revised range now set at 6.75% to 7%, we understand.

As seen earlier today with the second revision to price guidance for the Citrus Re 2017-1 catastrophe bond, ILS investors are clearly showing their appetite for investing in cat risk and the opportunity for sponsors to capitalise on this.

With this ICAT sponsored cat bond the price drop is quite significant, but that could be due to it being the first transaction sponsored by the firm, which is a highly respected underwriter of catastrophe exposed property risks, no doubt helping investor confidence in the deal.

It will be interesting to see whether this pricing trend, that has been evident since the late third-quarter of last year, continues and can encourage new sponsors to try catastrophe bond issuance, and former sponsors to return to the market in 2017.

We understand that the Buffalo Re Ltd. (Series 2017-1) catastrophe bond is expected to see final pricing and settlement next week. You can read all about this and every other cat bond in the Artemis Deal Directory.

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