Peak Reinsurance Company (Peak Re), the Hong Kong headquartered global reinsurer, is sponsoring its first ever catastrophe bond, with a $75 million Hong Kong domiciled Black Kite Re Limited (Series 2022-1) issuance.
Peak Re is seeking $75 million of industry loss trigger based Japanese typhoon retrocessional reinsurance with its debut Black Kite Re cat bond deal.
This is only the second catastrophe bond structure to have been located in Hong Kong since the special administrative region of China enacted its special purpose reinsurance vehicle and insurance-linked securities (ILS) regulations.
Chinese reinsurance company China Re was the first, having sponsored the Greater Bay Re Ltd. (Series 2021-1) cat bond last September.
So this new Black Kite Re Ltd. catastrophe bond is notable on two counts, for being the first from new cat bond sponsor Peak Re, and then also as the second cat bond to ever be issued out of Hong Kong.
Black Kite Re Limited will seek to issue a single tranche of Series 2022-1 Class A notes, that will be sold to investors and the proceeds used to collateralise a retrocessional reinsurance agreement between the Hong Kong based structure and Peak Reinsurance Company, we’re told.
The single tranche of notes targets at least $75 million of Japanese typhoon retrocession cover for Peak Re, with the notes structured to use an industry loss trigger on a per-occurrence basis across a three-year period from June, we’re told.
The Black Kite Re cat bond uses a CRESTA Industry Loss Index, we’re told, the first time we’ve seen this data source used in a catastrophe bond transaction.
This is interesting, as the CRESTA CLIX service (which is managed by PERILS AG) provides best estimate data on catastrophes, using public and non-public information, so is a little different to other industry loss data services that solely use re/insurer reported loss data.
We’re told the attachment point for the Class A notes will equate to a $12.5 billion Japan typhoon industry loss, as reported by CRESTA, while the exhaustion point will be $15 billion.
As a result, the currently $75 million of Class A notes to be issued by Black Kite Re will have an initial expected loss of 3.22% and are being offered to cat bond investors with price guidance in a range from 5.25% to 5.75%.
Clearly this is a diversifying peril for the cat bond market, especially versus other recent issues. So it will be interesting to see whether that pricing can be achieved, given recent spread widening in the market.
It’s very encouraging to see the Hong Kong ILS regulatory regime being used again, especially so with it being a local sponsor.
The fact Peak Re is a first time cat bond sponsor is also promising and continues the recent trend where a relatively significant proportion of new cat bond issuance is coming from first-timers to the marketplace.