Bermuda-headquartered global reinsurance firm RenaissanceRe has raised the target size for its new Mona Lisa Re Ltd. (Series 2020-1) catastrophe bond transaction by 80%, with the issuance now aiming to secure up to $450 million of retrocession for the company.
At the same time as increasing its appetite to underwrite retrocessional reinsurance, which as we explained last week RenRe is expected to underwrite more of again this January renewal season, the reinsurer is also making greater use of the appetite of capital market investors for retro property catastrophe risks using its Mona Lisa Re Ltd. cat bond vehicle.
Only the reinsurance firms second full catastrophe bond issuance in its history, the move signalled the attractiveness of the insurance-linked securities (ILS) market at this time for ceding risks, but also the appetite of RenRe to provide access to its risks through as many platforms as it can.
The company offers ILS funds, sidecar-like structures, joint-venture equity vehicles and other opportunities for insurance-linked investors. Mona Lisa Re is both a source of retrocession that can be used for managing its inward risks, but also yet another platform where RenRe can offload some of its exposures in a fully securitised form that is attractive to many third-party investors, at a time when it is writing more on the front-end of its business.
With market conditions conducive to larger catastrophe bond issues right now, thanks to strong investor appetite, RenRe has now raised its target for the Mona Lisa Re 2020-1 cat bond, aiming for at least a $325 million issuance but perhaps as much as $450 million, our sources said.
This cat bond will provide its protection to both RenaissanceRe and the firms joint-venture reinsurance vehicle DaVinciRe as well, covering them against certain losses from the perils of U.S., Puerto Rico, U.S. Virgin Islands, D.C. named storms and earthquakes, and Canada earthquakes.
Coverage will be on an industry loss index trigger basis, across a three-year term for losses specifically from personal, commercial and auto lines of business. One one tranche of notes will provide annual aggregate reinsurance protection and the other per-occurrence protection to the beneficiaries.
At launch, the deal was expected to see Mona Lisa Re Ltd. issuing a $125 million Series 2020-1 Class A tranche of notes, the annual aggregate layer of notes with an initial expected loss of 2.52% at the base case, which were offered to investors with price guidance in a range from 7.5% to 8.25%.
Now, we understand that the Mona Lisa Re 2020-1 Class A tranche has a new target size of $200 million to $250 million, while the price guidance has been narrowed towards the lower-end of the range at 7.5% to 7.75%.
The second, Series 2020-1 Class B tranche of notes was targeted $125 million of per-occurrence protection for RenRe, with an initial expected loss of 3.46% at the base case and these were offered to cat bond investors with coupon pricing guidance in a range from 8% to 8.75%.
Now, we understand that the Class B tranche is targeting an issuance size from $125 million up to $200 million, while the price guidance has also been narrowed slightly towards the lower-end at 8% to 8.5%.
The new target sizes and movement in price guidance suggests strong execution, with the annual aggregate layer growth particularly notable at a time when aggregate retro tends to be seeing reasonable price increases.
This is another cat bond that demonstrates the appetite of ILS investors for more fully securitised risks at this time, with some cat bond funds now raising capital to help them make the most of a period of more brisk issuance in the market.
Once again, RenaissanceRe is using the capital markets both as retrocession and a capital partners to support its front-end underwriting in as many forms as possible.
This Mona Lisa Re cat bond is just another route to capital for the firm, allowing it to better manage its exposures while leveraging investor appetite and benefiting from fees or price differentials across the range of sources of capital it manages.
The transaction is slated for issuance in January, so becoming one of the first 2020 catastrophe bond issues.
You can read all about this new catastrophe bond transaction from RenaissanceRe in 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.