Palomar Insurance Holdings has returned to the catastrophe bond market for what will be its fifth and also potentially its largest issuance, seeking $400 million or more in California earthquake reinsurance from the capital markets with this Torrey Pines Re Ltd. (Series 2024-1) issuance.
It’s an encouraging sign, as it shows Palomar deeply embedding the capital markets and catastrophe bond investor sourced risk capital within its growing reinsurance program.
The capital markets are helping to support its growth, in key markets such as California earthquake risk, which is also good for cat bond investors, as, at $400 million in size, this fifth Torrey Pines Re cat bond offers one of the most significant chances for diversification away from hurricane risk of the year so far.
As with other recent cat bonds sponsored by Palomar, this new issuance will provide reinsurance protection to both Palomar Specialty Insurance Company and Palomar Excess and Surplus Insurance Company, we understand.
You can read about all of Palomar’s catastrophe bonds in our extensive Deal Directory.
Bermuda based Torrey Pines Re Ltd. is set to issue three tranches of Series 2024-1 catastrophe bond notes, that will be sold to investors and the proceeds used to collateralize reinsurance agreements to protect the Palomar underwriting entities on a multi-year basis.
All three tranches of notes will provide Palomar with reinsurance protection for California earthquake losses, on an indemnity and per-occurrence basis, sources told Artemis.
The covered area can be expanded to include any additional states of Palomar’s choosing after the first reset, we understand.
Two tranches of notes will provide three years of reinsurance to the start of June 2027, the third just two years to the start of June 2026, which is likely a way to stagger the maturity dates on this larger issuance.
The first tranche, a $200 million three-year Class A layer, would attach their coverage at $750m of losses and exhaust it at $1.1bn, so are the highest in the reinsurance tower and the most risk-remote.
The Class A notes have an initial attachment probability of 1.92%, an initial expected loss of 1.58% and are being offered to investors with price guidance in a range from 5.5% to 6%, we are told.
The second tranche, a $125 million three-year Class B layer, would attach their coverage at $500m of losses and exhaust it at $700m.
The Class B notes have an initial attachment probability of 2.69%, an initial expected loss of 2.34% and are being offered to investors with price guidance in a range from 6.75% to 7.25%, we understand.
The final two-year $75 million Class C tranche of notes are the most junior and so risky, with an attachment point at $325m and exhaustion at $425m.
The Class C notes have an initial attachment probability of 3.64%, an initial expected loss of 3.32% and are being offered to investors with price guidance in a range from 8.5% to 9%, we are told.
This larger catastrophe bond issuance from Palomar could meet strong demand from investors, as we know many have been seeking diversification opportunities to counteract the heavy US wind content of the recent market pipeline.
At $400 million from launch, this has the potential to be Palomar’s largest catastrophe bond yet, eclipsing its $400 million issuance from 2021.
You can read all about this Torrey Pines Re Ltd. (Series 2024-1) catastrophe bond and every deal issued since 1996 in the Artemis Deal Directory.
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