The recently completed Laetere Re Ltd. (Series 2016-1) catastrophe bond transaction, which was sponsored by three United Insurance Holdings subsidiaries, was the first 144A cat bond to be structured as a discount note since 2009, according to reinsurance firm Swiss Re.
Swiss Re acted as the sole structuring agent and sole bookrunner for the issuance of the $100m Laetere Re catastrophe bond, which provides sponsor United Insurance Holdings three subsidiaries United Property & Casualty Insurance Company, Family Security Insurance Company, Inc. and Interboro Insurance Company with a fully collateralised source of multi-year reinsurance protection.
Three classes of notes were issued by Bermuda domiciled special purpose insurer Laetere Re, with Swiss Re underwriting the transaction. The deal was United’s first cat bond and provides the insurer with reinsurance protection against losses from named storms and earthquakes affecting certain coastal states of the U.S.
The underlying reinsurance agreements were underwritten and arranged to provide United with cascading per occurrence indemnity protection, across three issued classes of notes and across a one year risk period from June 1st 2016.
The transaction is split into a $30 million tranche of Class A notes, $40 million of Class B notes and $30 million of Class C notes. All three tranches were structured as discount notes, and Swiss Re claims this deal as the first cat bond under 144A rules to have been structured in this way since 2009.
By issuing the three classes of notes at a discount, meaning investors purchase the notes at a discounted rate (rather than 100% value) which is typically full price minus the premium, the cash proceeds of the transaction are able to be used more efficiently and investors are effectively paid up front, as they would be in a collateralised reinsurance deals.
Jean-Louis Monnier, Co-Head of ILS at Swiss Re Capital Markets, commented; “We are pleased to provide support to UPC on its debut catastrophe bond issuance. Laetere Re Ltd. is notable for its efficient structure – the first catastrophe bond sold at a discount pursuant to Rule 144A since 2009 – and the incorporation of a cascading per occurrence indemnity trigger.
“We hope that this transaction is the first of many catastrophe bonds for UPC as it seeks to build a long-term relationship with ILS investors and expand its reinsurance panel via this diversifying source of capital.”
Interestingly, we believe the last cat bond issued as a discount note pursuant to rule 144A may have been Swiss Re’s own Successor X Ltd. in November 2009.