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Nakama Re 2018 cat bond target jumps to $700m for Zenkyoren


The target size for giant Japanese reinsurance buyer Zenkyoren’s latest catastrophe bond issuance has increased dramatically, rising 180% to $700 million for the sponsor, as it seeks to continue expanding its use of ILS to transfer earthquake risks to the capital markets, while at the same time pricing indications have dropped.

Zenkyoren’s latest cat bond is the Nakama Re Ltd. (Series 2018-1) transaction, which launched earlier this month seeking a $250 million source of fully-collateralized Japanese earthquake reinsurance protection for the agricultural mutual insurer.

Investor demand and Zenkyoren’s appetite for capital market protection has driven the target size much higher, with the deal now looking set to secure the insurer a $700 million chunk of reinsurance protection, Artemis understands.

The deal will secure Zenkyoren a source of  three-year aggregate reinsurance coverage against Japanese earthquake risks, through the issuance of two tranches of Series 2018-1 cat bond notes from its Nakama Re Ltd. special purpose reinsurance vehicle.

What was a $200 million Series 2018-1 Class 1 tranche of notes is now set to upsize to a $500 million tranche, according to our sources.

What was a $50 million Class 2 tranche of Series 2018-1 notes, the riskier of the two layers being transferred, is also set to increase in size, with now $200 million of notes offered to prospective investors in the catastrophe bond.

At the same time as increasing the issuance size, we’re told the pricing on both tranches of Nakama Re 2018-1 cat bond notes has dropped to the bottom of the initial guidance.

The now $500 million of Class 1 notes, which have an initial expected loss of 0.48% and were offered with pricing in a range from 2% to 2.2%, are now set to price at the bottom end of that range at 2%, we hear.

The now $200 million of Class 2 notes, with an initial expected loss of 1.44% and that launched with coupon guidance of 3% to 3.25%, are likely to now price at the bottom-end as well, with a coupon of 3%.

The pricing for both tranches of notes are now destined to settle below their Nakama Re 2016 cat bond nearest equivalents. The 2016 Class 1 notes priced at 2.2%, while the 2016 Class 2 notes priced at 3.25%, while both had EL’s that were very close to this 2018 transaction.

The catastrophe bond market continues to demonstrate its ability to take on peak catastrophe risks at attractive pricing levels for sponsors, providing value to major reinsurance buyers like Zenkyoren.

The appetite for diversifying perils is also clear and while many ILS fund strategies are increasingly U.S. focused, in order to target the best catastrophe risk returns, the cat bond investor space still finds these remote Japanese risks an attractive addition to investment portfolios.

We’ll update you as this Nakama Re Ltd. (Series 2018-1) catastrophe bond issuance moves towards completion and you can read about this and every other cat bond transaction in the Artemis Deal Directory.

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