Participants comment on largest Euro denominated cat bond, Calypso Capital II


With the completion of AXA’s Calypso Capital II Ltd. European windstorm catastrophe bond occurring yesterday we now have statements from a number of the participants who had key roles in getting the largest Euro denominated natural catastrophe bond on record to market.

Statements have been published by AXA, the sponsor of the transaction, Swiss Re, whose Swiss Re Capital Markets unit acted as lead-structurer and bookrunner, BNP Paribas, acting as a joint-bookrunner, and Natixis, a co-arranger and also a joint-bookrunner.

The Calypso Capital II cat bond is the largest natural catastrophe bond issuance from AXA, previously it sponsored the €275m Calypso Capital Ltd. in 2010 and the €180m Calypso Capital Ltd. (Series 2011-1) in 2011. This again shows a sponsor taking advantage of current ILS and cat bond market conditions to up its protection from the capital markets.

At €350m (approx. $476m) in size Calypso Capital II Ltd. is the largest Euro denominated natural catastrophe bond on record, helping 2013 cat bond issuance reach $6.24 billion, yet another milestone for the 2013 issuance year. This clearly demonstrates the appetite that investors have for a peril to assist them in diversifying away from U.S. wind.

AXA said in its press release on the completion of the deal; “Following the 2010 and 2011 issuances, this new transaction has been structured through a new Irish Special Purpose Vehicle (Calypso Capital II Limited) providing AXA Global P&C with two fully collateralized, multiyear protections against extreme European windstorm risk.”

The transaction, as well as offering AXA more protection, also offers it more flexibility through the inclusion of a variable reset feature.

AXA continued; “The spread to be paid by AXA Global P&C during the risk period has been set initially at 260 basis points per annum for the Class A notes, and at 290 basis points per annum for the Class B notes. A new “variable reset” mechanism has been included allowing AXA Global P&C, for each new risk period, to adjust the protection levels within predefined ranges with the spread being revised accordingly as predetermined at issuance.”

AXA clearly appreciate the added flexibility and also the continued ability to access diversified sources of capital from institutional investors by issuing catastrophe bonds.

Philippe Derieux, Deputy CEO of AXA Global P&C and Group Reinsurance Officer, commented; “This issuance confirms AXA’s strategy to diversify the Group’s cover against natural catastrophes, by both traditional reinsurance and alternative risk transfer such as catastrophe bonds. With the development of the cat bonds market, it is now possible to issue more flexible instruments addressing more efficiently the protection needs of the Group.”

Swiss Re Capital Markets underwrote the cat bond transaction for AXA. The deal covers European windstorm losses in two classes of notes issued by Calypso Capital II Limited, an Irish private company incorporated with limited liability. The €185 million Class A notes have a three-year risk period and the €165 million Class B notes have a four-year risk period, both beginning on January 1st 2014.

The proceeds of the sale of the cat bond notes each collateralize a counterparty contract with AXA, providing per-occurrence reinsurance protection against windstorms in Belgium, Denmark, France (excluding French overseas territories), Germany, Ireland, Luxembourg, The Netherlands, Norway, Sweden, Switzerland, and the United Kingdom on a weighted PERILS index basis.

Jean-Louis Monnier, Director and Head of ILS Europe at Swiss Re Capital Markets, commented; “We are pleased to provide continued support to AXA’s strategy in accessing capital markets. The two classes of notes have been structured with a variable reset which provides AXA with the flexibility to easily integrate the notes within their traditional program. As the largest Euro-denominated transaction to date, Calypso Capital II underlines the current strength of the ILS market.”

The transaction uses a putable note, issued by the European Bank for Reconstruction and Development and underwritten by Swiss Re Capital Markets, as collateral for each Class of notes.

Investment bank BNP Paribas, a joint-bookrunner on the Calypso Capital II cat bond, said that the cat bond has an insurance industry loss trigger weighted by geography and line of business and feature a variable risk / adjustable coupon structure.

Rishi Naik, who leads Insurance-Linked Securities Trading at BNP Paribas commented; “We are very pleased by the success of the placement, with AXA having locked-in multi-year, collateralized capacity at a competitive price. The variable reset used on Calypso Capital II gives sponsors like AXA the flexibility to dynamically hedge their natural catastrophe exposures while providing investors with a risk adjustable return.”

Finally, French investment bank Natixis acted as a co-arranger and joint-bookrunner of this cat bond transaction. Having been involved in a number of other European cat bonds in the past, Natixis said; “This transaction further strengthens the position of Natixis on the European catastrophe bond market.”

At €350m (approx. $476m) in size, Calypso Capital II is a large catastrophe bond and it may be some time before we see another Euro denominated deal that is larger. The gradual increase in Euro cat bond deal sizes over the last few years shows that demand is there from sponsors, to transfer European risks to the capital markets, as well as from investors to allocate capital to Euro denominated cat bond notes as investments.

Read our article from yesterday which discusses that 2013 catastrophe bond issuance hit $6.24B with the completion of Calypso Capital II.

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