Italian insurer and first time catastrophe bond sponsor UnipolSai Assicurazioni S.p.A.’s Italian and European earthquake cat bond, Azzurro Re I Limited, has been upsized by one-third to €200m, while pricing has moved to just above the midpoint of guidance.
Azzurro Re I is the first catastrophe bond to securitise earthquake risks in Europe on an indemnity basis, making this a new prospect for insurance-linked securities (ILS) investors to analyse, understand and learn to appreciate.
The cat bond covers UnipolSai’s earthquake exposures in Italy, although covered events can occur in surrounding European countries as well.
When the cat bond launched earlier this month, UnipolSai was seeking at least €150m of fully-collateralized earthquake reinsurance protection from the issuance by Azzurro Re I. The coverage will protect UnipolSai against losses from earthquakes occurring in Italy, metropolitan France (but not overseas territories), Corsica, Austria, Switzerland, Slovenia and Monaco, with UnipolSai’s exposure all within Italy.
The cat bond provides its cover for a 3.5 year term, with maturity scheduled for January 2019, with coverage on a UNL indemnity trigger and per-occurrence basis. It would attach at €500m and now cover all losses up to an exhaustion point of €700m.
Thanks to investor demand, we understand that the Azzurro Re I cat bond will upsize by one-third to €200m in size before close. That is an encouraging result for UnipolSai and for any other European insurers that may seek to use a cat bond to cover earthquake risks in the future.
At the same time the pricing guidance for the single tranche of Azzurro Re I cat bond notes has been set to the top of the initial range. The transaction launched offering a range of 2% to 2.25%, but we understand that this guidance has been moved towards the upper-end at 2.15% where it is expected to price later today.
With an initial expected loss of 0.31%, the notes look set to price to provide investors with a multiple of almost 7 times. That’s a particularly high multiple, but ILS investors continue to seem unwilling to drop below the 2% mark for any risk, no matter how remote. And with this being a new peril and sponsor it’s unsurprising to see the high multiple.
The Azzurro Re I cat bond is expected to price later today and completion of the deal is slated for next week, we understand. It seems likely that completion will be at the upsized €200m and revised price guidance of 2.15%.