Bermuda-headquartered global reinsurance firm RenaissanceRe is returning to the catastrophe bond market for the first time since 2013, with a $250 million or larger Mona Lisa Re Ltd. (Series 2020-1) transaction, a clear sign that retro market conditions are making cat bond coverage more attractive to sponsors.
RenaissanceRe (RenRe) has never been a regular feature of the 144A catastrophe bond market, with the only previous broadly marketed cat bond transaction sponsored by the company being the July 2013 issued $150 million Mona Lisa Re Ltd. (Series 2013-2).
Mona Lisa Re had previously been used for private cat bond arrangements and it’s possible it has been since.
The fact RenRe has returned to cat bonds at this time could be indicative of the state of the global retrocession market, with rates rising and less available capacity making for stressed renewal market conditions at this time.
This is making catastrophe bonds more attractive to some sponsors, including a number of major players that have been testing the market in recent weeks, we understand.
With forecasts suggesting that cat bond market activity is going to be high over the coming months, signs of returning sponsors is positive, especially when it is one that has only tapped the cat bond market for collateralised reinsurance capacity once in the past and six and a half years ago at that.
RenRe’s Bermuda domiciled special purpose insurer (SPI) Mona Lisa Re Ltd. is aiming to issue two tranches of Series 2020-1 cat bond notes, that will be sold to investors and the proceeds used to collateralise underlying retro reinsurance agreements between the issuer and the beneficiaries of coverage, we have learned.
The beneficiaries of the coverage, the ceding reinsurers, will be Renaissance Re itself and also its DaVinci Re Ltd. vehicle, a third-party capital backed equity-based joint-venture reinsurer operated by RenRe.
The retrocessional reinsurance coverage that this Mona Lisa Re 2020-1 cat bond will provide to RenRe and DaVinci Re will be for certain losses from the perils of U.S., Puerto Rico, U.S. Virgin Islands, D.C. named storms and earthquakes, and Canada earthquakes as well.
Coverage will be on an industry loss index trigger basis across a three-year term, with one tranche of notes set to provide annual aggregate reinsurance protection and the other per-occurrence protection to the beneficiaries. We’re told this cat bond will cover losses specifically from personal, commercial and auto lines of business underwritten by RenRe and DaVinci Re, using data reported by PCS for the industry index trigger.
The first, Series 2020-1 Class A tranche of notes, is targeted as a $125 million issuance will provide RenRe with annual aggregate protection and uses a franchise deductible, so qualifying loss events have to be above a certain size.
The $125 million of Mona Lisa Re 2020-1 Class A notes have an initial expected loss of 2.52% at the base case, while they are being offered to investors with price guidance in a range from 7.5% to 8.25%.
The second, Series 2020-1 Class B tranche of notes is also targeting $125 million of protection for RenRe and will provide the company with the per-occurrence protection.
The $125 million of Mona Lisa Re 2020-1 Class B notes have an initial expected loss of 3.46% at the base case and have been marketed to cat bond investors with coupon pricing guidance in a range from 8% to 8.75%.
We’re told that risk modelling analysis shows that a repeat of 2017’s hurricanes Harvey, Irma and Maria, would not trigger either the annual aggregate or the per-occurrence tranches of this cat bond, based on latest estimates, showing that this cat bond covers either much larger single events, or an aggregation of more losses across an annual period than that year presented.
It’s encouraging to see RenaissanceRe back in the catastrophe bond market and it bodes well for the return of other sponsors, as well as the appearance of some more new ones over the coming months.
While the retro market remains constrained, in terms of capacity and with rates seen to be rising as much as 30% or more for aggregate retro covers in particular, the catastrophe bond market seems to be able to offer attractive alternatives that could tempt more sponsors to the market over the coming months.
We’ve added this new catastrophe bond transaction from RenaissanceRe to our comprehensive Deal Directory.
We’ll update you as and when any further information on this Mona Lisa Re Ltd. (Series 2020-1) cat bond comes to light.