Mitsui Sumitomo, an MS&AD Holdings insurance company, has returned to the catastrophe bond market to top-up its capital markets backed reinsurance protection with a currently $75 million Akibare Re Pte. Ltd. (Series 2020-1) Japan typhoon and flood risk transaction.
This new Akibare Re catastrophe bond is the fifth transaction to take that name and is sponsored by an entity of the MS&AD Holdings insurance group.
Mitsui Sumitomo Insurance Co. Ltd. is the beneficiary of the coverage for this fifth Akibare Re catastrophe bond transaction, being the largest insurer of the group.
For its latest cat bond deal, we’re told that the sponsor has elected to move domicile, as this new transaction is hosted in Singapore and will be issued through a Singapore domiciled Special Purpose Reinsurance Vehicle (SPRV), named Akibare Re Pte. Ltd.
As a result, we assume that MS&AD Holdings is benefiting from the Singapore Insurance-Linked Securities (ILS) grant for this first cat bond issuance it has sponsored to be domiciled in the country.
The Singapore domiciled issuer Akibare Re Pte. Ltd. will seek to issue a single tranche of Series 2020-1 Class A notes that are currently sized at $75 million and will be sold to investors with the proceeds providing collateral to underpin a reinsurance agreement between the issuer and the sponsor Mitsui Sumitomo.
The $75 million of Akibare Re 2020-1 Class A notes will provide Mitsui Sumitomo with a capital market investor backed source of indemnity and per-occurrence reinsurance protection against certain losses from Japanese typhoons and Japanese flood events, across a four-year term.
The coverage is for Mitsui Sumitomo’s fire insurance policy portfolio, which includes personal and commercial property risks, we understand.
The single Series 2020-1 Class A tranche to be issued by Akibare Re Pte. Ltd. is currently offering investors $75 million of notes.
But we’re told the notes will cover a layer of Mitsui Sumitomo’s reinsurance tower that is approximately $275 million in size, giving plenty of room for the issuance to grow if cat bond investor demand is sufficient to support it.
The notes will have an attachment point that sits around the US $3 billion level, giving them an initial expected loss of 0.81%, we understand.
The $75 million of Class A notes are being marketed to investors with price guidance in a range from 2.5% to 2.75%, sources said.
The sponsor had previously claimed on one of its catastrophe bonds in the last year, after losses from typhoon Jebi ate through the reinsurance layer of coverage provided by the Akibare Re Ltd. (Series 2016-1) deal.
So it’s natural to assume pricing would increase for this new Japanese wind and flood focused cat bond, especially as reinsurance pricing in general for Japan is expected to rise in price significantly at the upcoming April 1 renewals.
For comparison, the $100 million Class B tranche of notes from MS&AD’s Akibare Re Ltd. (Series 2018-1) catastrophe also covered Japan typhoon and floods and had an initial expected loss of 0.99% but saw the coupon priced at 1.9%.
Which suggests a not insignificant price increase for this 2020 transaction, which will be welcomed by ILS funds and cat bond investors as they continue to absorb losses from Japanese typhoon events.
It’s good to see Mitsui Sumitomo and the MS&AD group looking to replace some of its paid out catastrophe bond coverage, as it continues to find a place for the capital markets within its overall reinsurance program