Palomar Insurance Holdings, the speciality California-headquartered insurer that provides largely catastrophe exposed property products, has now secured its latest Torrey Pines Re Ltd. (Series 2022-1) catastrophe bond at the revised lower-end $275 million target size, but with its coupons priced at the elevated levels we reported yesterday.
Palomar returned to the catastrophe bond market around the middle of April, seeking $300 million or more of US earthquake reinsurance protection with a Torrey Pines Re 2022-1 cat bond issuance
Torrey Pines Re Ltd. aimed to issue two tranches of notes to secure $300 million, or more, of indemnity and per-occurrence structured collateralized US earthquake reinsurance for Palomar Specialty Insurance Company, that would run across a three-year term.
As we then reported yesterday, the sizing ambitions were reduced, with the Torrey Pines Re cat bond expected to settle to provide Palomar between $250 million and $300 million of reinsurance, while at the same time the pricing had risen considerably for both tranches of notes.
In fact, the coupon price levels were hiked by almost 40% in one case and around 22% in the other, both a significant uplift and reflective of the spread widening seen across the catastrophe bond market in recent weeks.
Sources have now told us that the new cat bond from Palomar is set to secure the company $275 million of reinsurance now, across the two tranches, while there has been no change in the final coupon prices, remaining elevated.
The Class A tranche of notes, which were preliminarily sized at $175 million, have now been finalised at $200 million in size.
The Class A notes will have an initial expected loss of 1.23% and were first offered to cat bond investors with price guidance in a range from 3.35% to 3.85%, which was then elevated, to 5%, a roughly 39% rise from the initial guidance mid-point and that is where the $200 million of notes have now priced, we understand.
The Class B tranche of notes had originally been targeting $125 million or more of protection for Palomar, but that target was reduced to between $75 million and $100 million, finally settling at the lower-end of $75 million, we’re told.
The riskier Class B notes will have an initial expected loss of 3.77% and were first marketed to investors with price guidance in a range from 6.5% to 7%, which was also elevated to 8.25%, a 22% increase from the mid-point of initial guidance, and that raised level is where the coupon has now been priced.
So, Palomar did not quite secure the targeted amount of reinsurance it had originally sought with this catastrophe bond, while the pricing rose considerably.
But it’s important to remember the insurer will have been looking to its traditional reinsurance partners at the same time and bought what it deems the most appropriate and cost-effective mix of protection, while diversifying its capital sources as well.
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