Liberty Mutual’s latest visit to the catastrophe bond market can be considered a resounding success for the company, after the new Mystic Re IV Ltd. (Series 2021-1) catastrophe bond transaction upsized to $300 million while marketing and the notes priced at a level below the low-end of initial guidance.
These two factors, upsizing and pricing below guidance, have become quite common for large and well-respected sponsors of catastrophe bonds in recent weeks, signalling both the appetite of the insurance-linked securities (ILS) market to support the reinsurance needs of significant market players, as well as the important role cat bonds can play as part of a reinsurance tower in a firming market environment.
Liberty Mutual returned to the catastrophe bond market recently to sponsor its first issuance since 2012.
But, thanks to ILS investor demand, the target was lifted and in the end the Mystic Re IV cat bond will be 50% larger at $300 million in size.
The $300 million of Series 2021-1 notes that will be issued by Mystic Re IV Ltd. will have an initial expected loss of 4.55%.
At first the notes were offered to cat bond funds and investors with coupon price guidance in a range from 9.25% to 10%, but that price guidance subsequently narrowed and fell, to an amended range of 9% to 9.25%.
We’re now told that pricing has been fixed today at the bottom end of that reduced guidance, offering investors a coupon of 9% for assuming the subject risk.
So, with its latest catastrophe bond now priced, Liberty Mutual is on-course to secure $300 million of U.S. multi-peril reinsurance coverage against certain losses from U.S. named storms and U.S. & Canada earthquakes, with the covered area including Puerto Rico, DC and the U.S. Virgin Islands, on a per-occurrence basis and using an industry loss trigger across a three-year term.
Not only that, but the coupon pricing came in some almost 7% below the mid-point of guidance, which presumably makes the reinsurance coverage more cost-effective than had been initially envisaged.
As we explained in our last update on this cat bond, interestingly, this 2020 cat bond return coincides with Liberty Mutual becoming more active in the retrocessional reinsurance market this year. As our sources told us that the company has been a significant quoter in early retro renewals.
That could explain the fact Liberty Mutual elected to utilise a industry loss trigger for this cat bond, or it could just be that the company finds its book large enough to warrant tracking the industries exposure to major catastrophe loss events.