NN Group targets first catastrophe bond with Orange Capital Re

NN Group, or Nationale-Nederlanden, has entered the catastrophe bond market for the first time, seeking to secure EUR 75 million or more in collateralised reinsurance from a first Orange Capital Re DAC (Series 2021-1) issuance.

NN Group is a life and property-casualty underwriter based in the Netherlands and that largely underwrites risks in that country and those close to it.

For its first catastrophe bond, we’re told that NN Group has opted to use Ireland as a domicile, possibly for Solvency II reasons, and has established Orange Capital Re Designated Activity Company (DAC) there for the issuance of catastrophe bond series and notes.

The sponsor or ceding company for this cat bond is actually NN Re, which is the Nationale-Nederlanden internal reinsurance vehicle.

NN Re helps NN Group manage its risks, hedge its portfolio and also access private reinsurance markets, so it makes sense to use the internal reinsurer as its conduit to the capital markets for insurance-linked securities (ILS) protection.

Orange Capital Re (DAC) will look to issue a single EUR 75 million (approx. US $85m) tranche of Series 2021-1 Class A notes that will be sold to catastrophe bond investors and the proceeds used to collateralise reinsurance agreements between the issuer and NN Re.

The notes issued will provide NN Group with a source of multi-year collateralised reinsurance against losses from European windstorms and severe thunderstorms, but the covered area is said to be just the Netherlands and Belgium, so not a full Europe-wide cat bond.

The reinsurance protection will be afforded on an indemnity trigger and per-occurrence basis, with coverage running across a three-year period to early January 2025, we understand.

The single EUR 75 million tranche of Class A notes will have an initial expected loss of 2.02% and the notes are being offered to cat bond investors with price guidance in a range from 3.25% to 3.75%.

One point of interest, sources told us the notes are offered at above-par, at 101.115, which is interesting as it effectively lowers the coupon slightly. We can’t confirm why this is the case, but it’s presumed to be structural and possibly related to the use of EBRD collateral.

It’s encouraging to see another new catastrophe bond sponsor in 2021, as the market continues to set new records and the expansion to new ceding companies promises to help sustain an elevated level of issuance going forwards as more re/insurers find the ILS market an efficient source of reinsurance capacity.

You can read all about the Orange Capital Re DAC (Series 2021-1) catastrophe bond and every cat bond deal ever issued in our Artemis Deal Directory.