Kilimanjaro II Re cat bond target jumps to $1.25bn for Everest Re

The catastrophe bond market has already seen records set in 2017, as we explained in our latest market report here, and now second-quarter issuance could get a significant boost as reinsurance firm Everest Re’s latest Kilimanjaro issuance more than doubles its target to $1.25 billion.

Sources told Artemis that Everest Re’s Kilimanjaro II Re Ltd. (Series 2017-1) looks set to more than double in size to $950 million, while its Kilimanjaro II Re Ltd. (Series 2017-2) transaction twin remains at its launch target size of $300 million.

On a combined basis this would be the second largest catastrophe bond issuance, in a single visit to the market, on record since the market’s inception in the mid-1990’s.

When the twin Kilimanjaro II Re 2017 cat bonds launched the total target was $600 million of collateralized reinsurance protection across the two series of notes, with the only difference between the two series being the duration of the term, as the 2017-1 series issued by Kilimanjaro II Re are set to provide their reinsurance cover across a four-year term, while the 2017-2 series will have a five-year term.

Aside from that the series of notes appear identical, with both seeing Everest Re seeking annual aggregate reinsurance cover against losses from named storms and earthquakes across the U.S. (including Puerto Rico) and Canada, on an industry loss basis and featuring a PCS index trigger.

The four-year term Kilimanjaro II Re 2017-1 notes have clearly been popular, more than doubling in size while marketing to investors to now seek $950 million across the three tranches of notes to be issued.

For the Series 2017-1 issuance, the Class A-1 notes are now $225 million in size, up from the $75 million mid-point of the Class A target, with pricing now fixed at 10%, so towards the lower end of the initial 9.75% to 10.5% price guidance. The Class B-1 notes are now $400 million, up from the $150 million mid-point target size for the Class B’s, while their pricing has been fixed at 7.5%, which is again nearer to lower end of the launch 7.25% to 8% range. Finally the Class C-1 notes are now at $325 million, up from the $75 million mid-point target size, with pricing at 6% which is the bottom of the launch 6% to 6.75% spread guidance.

For the five-year notes in the 2017-2 issuance, the Class A-2 notes are now $50 million, so lower than the mid of the Class A’s $150 million target, while the pricing has been set at 10%. The Class B-2 notes sit at $75 million, so have also shrunk from the initial middle of the Class B’s target of $300 million, pricing has been set at 7.5%. Finally the Class C-2’s are at $175 million, which is above the middle of the target size for the two Class C tranches and the pricing is fixed at 6%.

So once again it looks like another catastrophe bond issuance is set to price towards the lower end of pricing guidance, as ILS investors continue to support sponsors requirements for efficient reinsurance and retrocession.

For Everest Re, the end result looks set to be an issuance of above target size, significantly so for the four-year notes, and at target size for the five-year notes, while pricing for every tranche of notes has been reduced towards or at the bottom of initial guidance.

With ILS and catastrophe bond investor appetite remaining strong it appears that the market will soak up whatever is brought to it at this time, as long as the price and structure makes sense. The difference in reception of the four to five year term notes is clear from the size, and no doubt Everest Re would have maximised the five-year tranches if it had the chance.

But still the response to five-year reinsurance coverage from cat bonds is encouraging, as it signals the market is ready to support longer covers for trusted sponsors and at pricing that is very competitive with traditional reinsurers.

As we said in our earlier article, had Everest Re received sufficient support for the five-year 2017-2 tranches it was possible that the reinsurer could have opted to cancel the 2017-1 four-year issuance, in favour of securing as much of the longer duration reinsurance protection as it could.

But now the four-year notes have increased in size so significantly, while the five-year notes are also on target, it seems more likely that both series will be issued and as a result Everest Re will grow its catastrophe bond backed reinsurance protection by another $1.25 billion.

The Kilimanjaro II Re Ltd. (Series 2017-1) and Kilimanjaro II Re Ltd. (Series 2017-2) catastrophe bonds are set for completion next week. You can read all about these and every other cat bond in the Artemis Deal Directory.

Join Artemis in Singapore on July 13th 2017 for ILS Asia