Logistics, warehousing and supply-chain focused real estate owner and investor Prologis, Inc. has turned to the catastrophe bond market to source earthquake insurance protection, with the company set to be the beneficiary of a $95 million or larger Logistics Re Ltd. (Series 2021-1) cat bond issuance.
Prologis is the latest corporate sponsor of a catastrophe bond to come to light and as a first time entrant to the insurance-linked securities (ILS) market, the industry will be delighted to see a new class of company targeting insurance protection from the capital markets.
Prologis operates as a real estate investment trust, owning and investing in commercial real estate, largely linked to the warehousing, logistics and supply-chain sectors and with a United States focus.
Prologis also has a risk concentration in California, we understand, with roughly a quarter of the insured limit that will be covered by this Logistics Re catastrophe bond coming from that state and given the elevated earthquake risk in California, the state contributes 95% of the initial expected loss to this cat bond.
The company has had a special purpose insurer (SPI) named Logistics Re Ltd. registered in Bermuda for the purposes of issuing catastrophe bond programs and notes.
The protection from this first cat bond will be cascaded down from the Logistics Re Ltd. SPI, via global reinsurance firm Hannover Re, through Prologis’ captive insurer Solution Insurance Ltd. and on to Prologis itself.
That’s a typical cascading approach that is often used to enable a corporate sponsor to more directly and easily access the capital markets for insurance protection.
Logistics Re Ltd. will seek to issue a single $95 million Class A tranche of Series 2021-1 catastrophe bond notes.
Those notes will be sold to cat bond investors and the proceeds used to collateralize retrocessional reinsurance agreements between the SPI and Hannover Re.
Hannover Re will then provide reinsurance to the captive insurer, Solution Insurance Ltd. which will in turn insure Prologis, Inc.
The $95 million of Class A notes will provide Prologis with a three-year source of US earthquake insurance protection, covering the 50 states (with California the peak exposure) on an indemnity and per-occurrence basis, we’re told.
The Class A notes will attach at $350 million of losses to Prologis’ insurance tower and cover a percentage of losses up to $550 million, we understand.
That gives the notes an initial attachment probability of 1.559%, an initial expected loss of 1.094% and they are being offered to cat bond investors with coupon guidance in a range from 3% to 3.5%, sources said.
We understand the catastrophe bond issued by Logistics Re Ltd. will sit quite high in Prologis’ insurance tower and that the corporate is looking to the capital markets to both extend its coverage and because prices and conditions are deemed to be attractive for securing quake protection at this time.
It’s encouraging to see another corporate sponsor coming to market, especially as Prologis comes from a different market segment to other recent corporate cat bond beneficiaries.
This should help to expand awareness of the catastrophe bond among large corporates and owners or holders of asset portfolios, which could in time stimulate more of these types of sponsors to come to the ILS market.