Palomar Insurance Holdings, the speciality California-headquartered insurer that provides largely catastrophe exposed property products, is set for a successful visit to the catastrophe bond market with its new Torrey Pines Re Pte. Ltd. (Series 2021-1) earthquake cat bond that has grown by one-third while marketing to reach $400 million in size.
It’s Palomar’s first visit to the catastrophe bond market since 2017, when the insurer 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.
Singapore based special purpose reinsurance vehicle Torrey Pines Re Pte. Ltd. will now issue $400 million of notes, across two tranches, we’re told.
Each have different risk and return levels and the now $400 million of cat bond notes will 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.
The two tranches were both $150 million in size at the start of marketing this latest Palomar catastrophe bond deal, so both have grown by an equal amount.
The now $200 million Class A tranche of notes have an initial expected loss of 1.83% and were first offered to investors with spread guidance in a range from 4% to 4.5%. Now, we understand the pricing has been fixed at the low-end of guidance, to offer investors a risk interest spread of 4%.
The Class B tranche, which is now also $200 million in size, features notes with an initial expected loss of 2.97%, so riskier than the Class A layer. These notes were first offered to cat bond investors with coupon spread guidance in a range from 5.25% to 5.75% and we now understand these too have priced at the low-end of spread guidance, at 5.25%.
So the Torrey Pines Re 2021-1 catastrophe bond from Palomar becomes the latest to offer its sponsor an upsized amount of reinsurance protection at pricing below the mid-point of initial guidance, reflecting the continued strong level of investor appetite in the cat bond market at this time.