The strong investor support seen for the first catastrophe bond issuance from Netherland’s based insurer NN Group, or Nationale-Nederlanden, shows the confidence the ILS investor community has in the insurers catastrophe management and underwriting, as well as in the modelling process, according to RMS.
NN Group came to market with its first catastrophe bond, the EUR 75 million Orange Capital Re DAC (Series 2021-1) transaction, back in December.
The issuance appeared to be well-received by ILS investors and while NN Group didn’t increase its appetite for reinsurance in response to investors reception of its first catastrophe bond, with the deal settling at EUR 75 million, the insurer did benefit from keen pricing.
The EUR 75 million tranche of Class A catastrophe bond notes issued by Orange Capital Re DAC have an initial expected loss of 2.02% and were first offered to cat bond investors with price guidance in a range from 3.25% to 3.75%.
At pricing though, NN Group secured the cat bond backed reinsurance protection at the low-end of guidance, to pay a 3.25% coupon and reflecting a relatively low multiple-at-market, so keen pricing.
NN Re, the Nationale-Nederlanden internal reinsurance vehicle and hedging company was the cedent to the cat bond transaction and catastrophe risk modelling specialist RMS provided the modeling services to get the transaction to market.
With the Orange Capital Re cat bond providing NN Group with three years of reinsurance protection against losses from European windstorms and severe thunderstorms, across a covered area of the Netherlands and Belgium, it is notable that this is the first cat bond issuance to use RMS’ Europe Severe Convective Storm HD Models.
The risk analysis also used the RMS Europe Windstorm Models.
RMS explained that its Europe Severe Convective Storm HD Models cover the full spectrum of sources of severe convective storm loss, from localised tornadoes and hailstorms, to large derecho events.
“While sometimes viewed as an attritional peril, severe convective storms can cause extensive losses and incomplete observational reporting meaning that relying on historical experience to manage the risk is inadequate,” RMS explained.
Adding that, “The models employ innovative peer-reviewed technology to model the severe convective storm hazard risk in Europe, as well as an advanced engineering-based vulnerability, accounting for factors such as angle of hailstone impact or roof versus building-facade vulnerability.”
Commenting on the successful issuance of NN Group’s first catastrophe bond, Jin Shah, Director at RMS, said “We are proud to have worked with NN on this innovative and highly successful transaction.
“The strong support from investors demonstrates the market’s confidence in NN’s cat management and underwriting, as well as RMS EU climate risk modelling capabilities.”
Providing confidence to investors is a big part of the job of a cat bond risk modeller and this is especially the case where new, or less frequently ceded perils are concerned.
European thunderstorm and severe convective storm risk is not commonly seen in cat bond form. In fact, European perils are much less commonly seen, since the pricing of European catastrophe reinsurance had declined to particularly low levels in recent years.
European reinsurance rates did increase at the January renewals and it seems likely NN Group’s first foray in the cat bond market may have been stimulated by a desire to leverage all forms of reinsurance capital, to ensure best execution of its renewal.
Given the attractive pricing secured for the Orange Capital Re cat bond deal, it seems NN Group likely succeeded.
You can read all about the Orange Capital Re DAC (Series 2021-1) catastrophe bond and every cat bond deal ever issued in our Artemis Deal Directory.
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