Palomar Insurance Holdings, the speciality California-headquartered insurer that provides largely catastrophe exposed property products, has returned to the catastrophe bond market its second transaction, with a new $300 million Torrey Pines Re Pte. Ltd. (Series 2021-1) earthquake only deal that is being issued out of Singapore.
Palomar had previously sponsored a $166 million Torrey Pines Re Ltd. (Series 2017-1) catastrophe bond back in 2017, that gave the insurer a source of multi-year and multi-peril catastrophe reinsurance, covering U.S. named storms, severe thunderstorms and earthquakes.
After that first Torrey Pines Re cat bond matured in 2020, Palomar was planning to renew it but said that it found pricing and some of the terms & conditions on offer less conducive at the time, which was likely due to the effects of the pandemic on cat bond investor appetite and also their focus at the time.
As a result, it’s encouraging to see Palomar back for what will be its second catastrophe bond and even better to see the insurer looking to sponsor a significantly larger deal.
Palomar has turned to Singapore to domicile a new cat bond issuance vehicle, which will also enable the insurer to benefit from Singapore’s ILS grant scheme which pays some upfront issuance costs.
Special purpose reinsurance vehicle Torrey Pines Re Pte. Ltd. has been registered in Singapore we understand from sources and this structure will look to issue $300 million of catastrophe bond notes that are solely exposed to U.S. earthquake risks.
The $300 million of notes will be issued across two tranches, with different risk and return levels, with the notes set to be sold to investors and the proceeds used to collateralize earthquake reinsurance agreements between Torrey Pines Re Pte. Ltd. and the cedent which is Palomar Specialty Insurance Company.
Both tranches of notes issued will provide Palomar with earthquake reinsurance protection, covering 50 states of the U.S., across a just over three-year term to the end of June 2024 and on an indemnity and per-occurrence trigger basis, we’re told.
A Class A tranche is sized at $150 million and the notes have an initial expected loss of 1.83% and are being offered to investors with spread guidance in a range from 4% to 4.5%.
A Class B tranche of also $150 million in size and its notes have an initial expected loss of 2.97%, so riskier, and are being offered to cat bond investors with coupon spread guidance in a range from 5.25% to 5.75%.
This issuance will put the catastrophe bond market firmly within Palomar’s growing catastrophe reinsurance program, making ILS investors a significant contributor to its protection against earthquakes over the coming years and locking in cover alongside which the company can continue to expand its book.
The certainty of multi-year capital markets protection can be a significant benefit to growing, catastrophe focused insurers, such as Palomar.