Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

One tranche of AIG’s Tradewynd 2013-2 withdrawn, pricing tightens


AIG’s latest catastrophe bond transaction, Tradewynd Re Ltd. (Series 2013-2), has seen one tranche withdrawn from the issuance, while price guidance on the other three has tightened. This cat bond transaction is now targeting $180m across the remaining notes.

Update 3rd Dec 2013: We understand that this deal has increased in szie again to $400m while pricing has been set at the top end of the narrowed ranges.

Tradewynd Re 2013-2 is the second of AIG’s latest cat bond program which seeks to bring some more unusual and less well-modelled risks into the catastrophe bond market.

When it launched this deal a couple of weeks ago, AIG was seeking at least $100m of protection through the issuance of four tranches of notes. We understand from market sources that one of the four tranches has been withdrawn from the issuance and the other three now have preliminary sizes which in total add up to $180m.

The three remaining tranches provide cover for a diverse book of AIG’s business from the perils of named storms (so tropical, subtropical and hurricanes) in the U.S., Caribbean and Gulf of Mexico and earthquake risks in the U.S. and Canada. Each tranche will use an indemnity trigger and provide per-occurrence protection.

When it launched, Tradewynd Re 2013-2 had two tranches to provide 1-year protection and two which would provide 3-year protection. According to sources it is the riskier of the 1-year tranches of notes, Class 1-B, which has been withdrawn from the offering. Details of the preliminary size and also the tightened price guidance for each of the remaining three tranches of notes can be found below. For full details on the tranches visit the Deal Directory.

The Class 1-A tranche, which provides 1-year protection, from January to the end of December 2014 has a preliminary size of $30m we understand. These notes launched with a coupon guidance range of 6% to 6.75% , but that range has now tightened to 6% to 6.25%.

The Class 3-A tranche, which provides 3-year cover, from January 2014 to the end of December 2016 has a preliminary size of $75m. These cover the same layer of risk as the Class 1-A notes. This tranche was launched with a price guide range of 6.25% to 7% which has now tightened to 6.25% to 6.5%.

Finally, the Class 3-B tranche, also a three-year cover, from Jan 2014 to end of Dec 2016, has a preliminary size of $75m. This tranche would have provided cover for the same layer as the withdrawn Class 1-B notes. The price guidance for these notes when the deal launched was 7% to 7.75%, but this tranche has also see pricing tighten to 7% to 7.25%.

Final pricing for Tradewynd Re 2013-2 is expected later this week and the transaction will close in mid-December, we understand.

AIG will no doubt be delighted with the progress that their second Tradewynd cat bond is making in the market. Their first, Tradewynd Re Ltd. (Series 2013-1), only reached $125m in size, so this 2013-2 issuance will be 44% larger if it settles at its current size. The withdrawal of a 1-year tranche will not be an issue for AIG, especially as the size of the transaction has lifted, given the size of their book they may well have been testing the market with some new options with the 1-year notes anyway.

With price guidance tightening on all three remaining tranches AIG will likely secure the reinsurance protection at attractive terms and pricing. It’s also interesting to note that pricing on the previous 2013-1 Tradewynd cat bond moved to the top end of the initial range, where as these three tranches all seem to be moving to the bottom suggesting more demand and acceptance by investors.

The successful passage of this cat bond to market will demonstrate another level of acceptance of risk among ILS investors, as they show willingness to invest in more complex underlying business which is perhaps not as well understood. We’ll update you once the transaction completes.

You can read full details on Tradewynd Re Ltd. (Series 2013-2) in our Deal Directory and the entry will be updated as information becomes available.

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