The latest catastrophe bond to hit the market, MultiCat Mexico Ltd. Series 2012-1, closed and listed on the Cayman Islands stock exchange on Friday and has received its final ratings from Standard & Poor’s today. The second MultiCat deal, replacing the cover from MultiCat Mexico 2009, was extremely well received by investors, becoming oversubscribed, upsizing slightly and eventually pricing below the initial expected range.
To refresh your memories, this MultiCat Mexico 2012 cat bond covers The Fund for Natural Disasters of Mexico (FONDEN), via a catastrophe insurance agreement with AGROASEMEX and a reinsurance agreement with Swiss Re who are the actual sponsor, or ceding reinsurer of this deal. Swiss Re ultimately receive a fully collateralized, multi-year source of retrocessional reinsurance cover for Mexican hurricane and earthquake risks through MultiCat Mexico 2012.
As is expected at this time of year, when primary cat bond issuance is slow due to the hurricane season, MultiCat Mexico 2012 was oversubscribed a number of times according to reports as it proved so popular with investors. As the cover is ultimately for FONDEN and they have a limited need for reinsurance according to the size of their exposures, the transaction was not able to accommodate all the investor interest and only upsized a little. During the marketing of the deal it upsized from $300m to $315m before it closed. Interestingly it was the Class B tranche of notes which are exposed to Atlantic hurricanes which upsized, showing that investors will still buy hurricane risk in the middle of the Atlantic season.
The transactions pricing was revised downwards twice during the marketing of the deal. The expected pricing range was reduced first and then when the deal finally priced it was right at the bottom of that reduced range. The $140m of Class A notes which are exposed to earthquakes priced at 8.00%, the upsized $75m of Class B notes which are exposed to Atlantic hurricanes priced at 7.75% and the $100m of Class C notes which are exposed to Pacific hurricanes priced at 7.50%. With the pricing having dropped by 1% or more on each tranche, the MultiCat 2012 cat bond has secured the cover at a very reasonable price for the sponsors.
The Cayman Islands domiciled MultiCat Mexico Limited’s five-year variable rate note program and the $315m of Series 2012-1 notes issued through MultiCat Mexico, have been listed on the Cayman Islands Stock Exchange on Friday.
Rating agency Standard & Poor’s affirmed the ratings on each of the three tranches of notes today, assigning ‘B (sf)’, ‘B+ (sf)’, and ‘B- (sf)’ ratings to the series 2012-I class A, B, and C notes respectively.
The demand for this cat bond and the downward pressure on pricing is testament to the interest in cat bonds from investors today. By securing this cover at a very reasonable price the MultiCat Mexico 2012 deal once again demonstrates that reinsurance protection provided by catastrophe bonds can be very competitive compared to traditional sources of cover.
You can read full details about this transaction and almost every other cat bond transaction in our Deal Directory.
Read our archive of articles regarding the MultiCat Mexico 2009 deal and the MultiCat Program which make for interesting reading as there have been a number of catastrophe events which threatened the 2009 deal but did not qualify under the terms of the parametric triggers.