The latest catastrophe bond issue from U.S. primary insurer Travelers, Long Point Re III Ltd. (Series 2015-1), has upsized by 50% to reach $300m, while the pricing eventually settled at the mid-point of launch guidance.
Long Point Re III 2015-1 is Travelers’ fifth catastrophe bond and will provide the insurer with a fully-collateralized source of reinsurance protection for multiple U.S. perils (tropical cyclones, earthquakes, severe thunderstorms and winter storms) over a three-year term.
The deal launched a fortnight ago, initially sized at $200m and with price guidance offering investors the option of a coupon in the 3.5% to 4% range.
Earlier this week we wrote that the single tranche of Series 2015-1 Class A notes was likely to upsize to somewhere between $200m and $300m. It’s now clear that investors were keen to support the reinsurance needs of Travelers and the transaction grew by 50% to reach the top of that range at $300m.
At the same time the price guidance was narrowed and moved towards the upper end of initial guidance, to 3.75% to 4%. Now, we understand, the notes have been priced at 3.75%, which is the mid-point of the launch guidance range.
The $300m of Series 2015-1 Class A notes that Long Point Re III will issue attach at $2 billion of losses and cover losses up to an exhaustion point of $2.5 billion, but after a retention of at least 10% of event losses and a maximum per covered insurer of $20m per risk.
The notes have an initial attachment probability of 1.276%, an initial exhaustion probability of 0.946% and an expected loss of 1.106% base case, or 1.176% on a sensitivity case basis.
With pricing now set at 3.75% the multiple, of expected loss to coupon, comes out at roughly 3.4x’s the expected loss base case and 3.2x at the sensitivity case.
The cat bond has a variable reset, at which the risk interest spread can be reduced to a minimum of 3.5% and an upper bound of 4.38%, when the attachment is adjusted accordingly.
Long Point Re III 2015-1 is the first cat bond in a while to see pricing settle at the mid-point and not above, which is likely due to the high multiples and the deal having launched with what investors likely deemed a reasonable risk/return profile, compared to some other recent cat bonds.
The Long Point Re III Ltd. (Series 2015-1) catastrophe bond is expected to settle late next week. You can read all about it, as well as every cat bond that Travelers has sponsored in the past, in the Artemis Deal Directory.