The Hoplon II Insurance Ltd. lottery jackpot winnings catastrophe bond-type structure has now had the pricing finalised for both tranches of jackpot risk-linked notes that are being issued on behalf of the sponsor MyLotto24.
The Hoplon II Insurance ILS deal launched a few weeks ago seeking a €50m collateralized source of insurance protection for MyLotto24 to cover lottery jackpot winning and tax shortfall risks. The deal is MyLotto24’s second trip to the capital markets for this protection, following on from the 2011 Hoplon Insurance Ltd. deal, which matures in September.
Hoplon II Insurance, will provide €50m of lottery jackpot protection from the issuance of two tranches of insurance-linked notes, while a collateralized reinsurance layer will also be placed but we don’t have size details for it.
Hoplon II Insurance features two tranches of notes linked to lottery jackpot risks. Both the Class A and Class B tranche of notes are sized at €25m each and have now been priced.
The Class A notes, which have an attachment point of €85m and an exhaustion point of €110m with an expected loss of 2.32%, launched with price guidance of 6.5% to 7.5% and we understand that the pricing has settled at the bottom end of that range, at 6.5%.
The Class B notes, which attach at €60m and exhaust at €85m of qualifying jackpot losses making them riskier with an expected loss of 5.38%, launched with guide pricing of 11.25% to 12.25%. That pricing has now settled towards the upper end of guidance, at 12%, we understand.
Both tranches of notes will pay investors a small coupon of 1.5% up until the beginning of the first risk period in September.
The collateralized reinsurance layer, which Hoplon II Insurance will enter into privately alongside the ILS (or catastrophe bond) note issuance, will cover losses below the two tranches of notes, from €35m to €60m of losses. It’s expected this will feature a higher rate on-line as a result.
The Hoplon ILS deals from MyLotto24 remain some of the most interesting in the space, as they are a corporate catastrophe bond, providing insurance protection to MyLotto24, while using a special purpose vehicle and securitisation in order to access the capital markets for cover using a cat bond style trigger.
As such they show the potential for the catastrophe bond and ILS market to move outside of pure reinsurance risks, into corporate risk transfer, as well as into new areas where a binary trigger can be used to define a payout against a modelled exposure. Investors in ILS are in many cases keen to gain access to new risks and different ways of accessing insurance-linked returns, Hoplon demonstrates that this is possible and it is expected that such deals will increase in popularity with potential sponsors and investors.