Another new catastrophe bond transaction launched yesterday and this time it is a particularly interesting one as the sponsor for this cat bond is Bermuda reinsurer RenaissanceRe. This $125m deal is Mona Lisa Re Ltd. (Series 2013-2) and with this cat bond RenRe is looking to transfer some U.S. hurricane and earthquake risk to capital market investors.
It’s particularly interesting to see that this first Mona Lisa Re cat bond to be marketed broadly enough for us to have heard about it is a Series 2013-2 issuance. That means there has been a 2013-1 series of notes issued already and we can only assume that was the private catastrophe bond transaction between RenaissanceRe and investor LGT which we wrote about here.
So this will be the first catastrophe bond deal listed in our Deal Directory where RenaissanceRe is listed as sponsor. It has taken the reinsurer some time to look to the cat bond market for risk transfer so this is an important deal for the market as RenRe has the capacity to become a regular sponsor of transactions, if it chose to.
In this cat bond Mona Lisa Re Ltd., a Bermuda domiciled SPI, will issue a single tranche of Series 2013-2 notes with the aim of collateralizing a reinsurance agreement with two sponsors, RenaissanceRe and DaVinci Re. The tranche of Class A notes have a preliminary size of $125m we understand. It’s interesting that DaVinci Re is also named, as it is a RenRe owned entity which is also partly funded by third-party capital through the joint-venture agreement it has in place with insurer State Farm Mutual Insurance.
The two sponsoring entities will benefit from this cat bond by securing a fully-collateralized source of named storm (tropical storm and hurricane) coverage for the U.S. and Puerto Rico as well as earthquake coverage for the U.S. Protection from the cat bond will be afforded by a PCS based industry loss trigger which will be state weighted and coverage is on an annual aggregate basis, we understand. The cat bond will provide the sponsors with a source of collateralized retrocessional reinsurance over a four-year risk period.
We’re told that the underlying reinsurance features a franchise deductible of $50m, meaning that qualifying events need to create losses above this level to aggregate towards the attachment point. The attachment point is said to be $875m while the exhaustion is said to be $1.125 billion. This equates to an attachment probability of 2.3%, an exhaustion probability of 1.52% and gives the deal an expected loss of 1.88%. In terms of coupon, we’re told the deal is being marketed with an interest guide range of 7% to 7.6%.
We understand that the deal will cover personal and commercial property lines losses and also auto business losses. As an annual aggregate deal, events can qualify and losses will be aggregated during each annual period. If the total aggregated losses have not reached the attachment point by the end of the annual risk period then it will be reset, and losses start from zero again the next year.
AIR Worldwide are providing the risk modelling for this deal. Aon Benfield Securities and Goldman Sachs are acting as joint structurers and bookrunners.
That’s all we have for now on this first addition to our Deal Directory sponsored by RenaissanceRe. We’ll bring you more details as Mona Lisa Re Ltd. (Series 2013-2) comes to market and information becomes available.