Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Mythen Re Ltd. cat bond targets $200m, has one class of notes withdrawn


Swiss Re’s latest catastrophe bond deal, which is the first to ever hit the market with a tranche covering both catastrophe and extreme mortality risks, has had one class of notes withdrawn during marketing according to our sources. The Mythen Re Ltd. (Series 2012-2) cat bond, through which Swiss Re are seeking a source of cover for U.S. hurricane risk and UK extreme mortality risk was originally marketed with three tranches of notes but now one has been withdrawn.

Out of the three tranches of notes, which were a Class A tranche of notes to cover both U.S. Atlantic hurricane risk and UK extreme mortality risk in a single class of notes and Class B and C tranches purely exposed to U.S. hurricanes, it is the Class B tranche which Swiss Re are no longer offering as part of this transaction.

The Class B tranche was the less risky of the two hurricane only tranches, with an attachment probability of 3.11% for Class B versus 4.73% for Class C. Besides that there is little to differentiate between them as both were structured to use an industry-loss index trigger with Class C designed to trigger at a much lower amount of industry losses making it riskier and providing cover at a lower level to Swiss Re.

Our sources tell us that Swiss Re has in the past withdrawn tranches of notes when interest has not been sufficient to make them economical to issue. We’re can’t confirm whether this is the case with this deal. It is interesting that it is the riskier tranche of notes that remains in the offering as that suggests that investor appetite for U.S. hurricane risk on an industry loss basis remains high, even when it is for a higher attachment probability. Of course, along with the higher probability of attachment and expected loss is a higher coupon payment for investors, so perhaps investors are seeking yield rather than security. If either of those two suppositions are the case it shows an increased maturity among the investment community as they show willingness to buy into the riskier notes of a cat bond over the safer notes.

Our sources also tell us that this Mythen Re Ltd. cat bond will target $200m, with the Class A combined hurricane and mortality class of notes expected to raise $115m and the Class C hurricane notes expected to raise $85m. With order books still open there is a small chance that could rise further we assume.

Also of note is the fact that Mythen Re is yet another cat bond which is expected to price at the bottom end of expectations. The Class A notes are expected to price between 8.50% and 9.00% (down from 9.00% to 9.50% at launch) and the Class C notes expected to price at 11.75% (the bottom end of the pricing range at the launch of this deal). This demonstrates again the tremendous appetite for risk in cat bond form at this time and we expect this trend for downward pricing pressure to be evident in the other cat bonds which are still marketing.

We will keep you posted as Mythen Re Ltd. (Series 2012-2)  comes to market. You can find more details in our article revealing this transaction and our Deal Directory. The deal is expected to close at the end of next week.

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