Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Kilimanjaro Re 2014-2 cat bond grows to $500m, pricing at mid-point


The Kilimanjaro Re Ltd. (Series 2014-2) catastrophe bond, launched recently for Bermuda reinsurance firm Everest Re, reflecting strong investor demand for the ILS asset class is set to increase in size by 43% to secure the reinsurer $500m of protection.

When this cat bond launched in late October the Kilimanjaro Re 2014-2 issuance was targeting $350m of retrocessional protection for certain U.S. and Canadian earthquake risks for Everest Re. As the first fourth-quarter cat bond strong demand was almost guaranteed and we understand that it now looks like the deal will complete at $500m in size, or greater.

At the same time as growing in size the pricing guidance has moved towards the mid-point of the initial range. This will be pleasing for some investors who have expressed concern that cat bond pricing should not fall too far recently.

The single tranche of Series 2014-2 Class C notes, exposed to U.S., Puerto Rico and also Canada earthquakes on a PCS industry loss trigger and per-occurrence basis, launched with price guidance of 3.5% to 4%. We understand that this guidance has moved to the mid-point at 3.75% where investors tell us they have an expectation it will stay when the deal reaches final pricing later today.

With an initial expected loss of 1.46% and pricing at 3.75% the deals multiple will be 2.6X, which is similar to some of the more remote risks issued so far this year, but remains below the average multiple of 2014 catastrophe bond issuance so far.

This is Everest Re’s second time sponsoring a cat bond, after its first in April with a $450m U.S. named storm and earthquake Kilimanjaro Re Ltd. (Series 2014-1), the reinsurer will no doubt be delighted with the increase in size and the attractive pricing that look set to be secured for its second visit to the catastrophe bond market.

Investors will be pleased to see the deal grow as well, as there is a significant appetite for new cat bond risk in the market right now. Investors have capital to put to work. Some ILS managers will be hoping to accept new inflows from these investors but require the deal-flow to allow that to happen. This is a very positive start for the fourth-quarter and bodes well for the issuance market now and into 2015.

It is also positive for new sponsors who may be watching the market to see where appetite and pricing lies. With the deals pricing moving to the mid-point it gives sponsors an indication of where investor appetite for risk sits and where the pricing floor lies. Investors have made a point of demonstrating that they will not support every cat bond deal pricing at the bottom which demonstrates a level of discipline that is much-needed.

This cat bond is expected to complete later in November. We will keep you updated as it comes to market and you can read all about Kilimanjaro Re Ltd. (Series 2014-2) in our catastrophe bond Deal Directory.

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