Demonstrating the appetite for catastrophe bond investments, the latest transaction to come to market from regular catastrophe bond sponsor Zenkyoren, Nakama Re Ltd. (Series 2016-1), has more than doubled in size to hit $700m during marketing.
When the Nakama Re 2016-1 cat bond was launched for Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives, the transaction was seeking just $250m of Japanese earthquake reinsurance protection for the company.
The deal launched with sponsor Zenkyoren seeking the issuance of two tranches of notes through its Nakama Re Ltd. special purpose reinsurance vehicle, with both tranches providing their Japanese quake reinsurance protection on a three-year aggregate basis.
Clearly investor demand has been high, as a $200m Class 1 tranche of Nakama Re 2016-1 notes has now more than doubled to $550m in size, while a $50m Class 2 tranche of cat bond notes has tripled in size to $150m, sources explained.
This is evidence of the capital markets ability to satisfy sponsors demand for reinsurance and retrocession on remote layers of risk, increasingly competitive on price with the traditional reinsurance market.
Further demonstrating ILS and catastrophe bond investor demand, as well as strong execution by the deal team, both of the tranches of notes look set to price at the bottom end of initial guidance, also reflecting ILS investors increasing comfort with these three-year aggregate type cat bonds.
The lower risk now $550m of Class 1 notes, which have an annualised expected loss of 0.49%, are set to price at the lowest end of initial guidance at 2.2% we’re told, which would offer investors a multiple of almost 4.5 times the expected loss.
Meanwhile the riskier $150m of Class 2 Nakama Re 2016-1 cat bond notes, which have an annualised expected loss of 1.47%, are set to price at 3.25% which is also the lowest end of guidance, offering investors a multiple of 2.2 times the expected loss.
Catastrophe bond issuance has been lower in 2016 so far, despite the record Q1, as some sponsors have turned to very competitively priced traditional cover, while reinsurance firms have competed heavily on price.
However, to see a regular sponsor and one of the world’s largest reinsurance buyers increasing its commitment to the catastrophe bond market is both evidence of the comfort sponsors have with the market and the investors high levels of appetite for new securitised 144A cat bonds right now.
That could encourage other sponsors to come back to the market, as Zenkyoren has clearly demonstrated that well-priced and abundant reinsurance cover can be secured from the catastrophe bond market right now.