RenaissanceRe, the Bermuda-headquartered global reinsurance firm and third-party capital manager, has settled for a 60% upsizing of its latest catastrophe bond, with the Mona Lisa Re Ltd. (Series 2020-1) cat bond transaction now priced at $400 million in size.
The reinsurer had originally come to market with a $250 million Mona Lisa Re cat bond for 2020, the firm’s second ever issuance.
But the target was lifted by as much as 80%, with RenaissanceRe (RenRe) looking for from $325 million to as much as $450 million of retrocessional reinsurance protection from the deal, as investor appetite proved strong.
In the end though, RenRe has settled for a $400 million issuance, the companies biggest catastrophe bond yet and representing a 60% increase in issuance size during the process.
RenRe has once again been increasing its appetite to underwrite retrocessional reinsurance, which as we explained recently the firm is expected to underwrite more of again this January renewal season.
Alongside this, 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 as one of its many routes to draw in new capital support for its business.
With this only RenRe’s second time sponsoring a cat bond, this upsizing signals the attractiveness of the insurance-linked securities (ILS) market at this time for ceding risks, as well as the appetite of RenRe to provide investors with access to its risks through as many platforms as it can.
It also signals RenRe’s willingness to use whatever routes to third-party capital prove most effective and attractive to it, with the cat bond market clearly seen as an efficient way to cede its risk and attract capital for 2020.
This now $400 million Mona Lisa Re 2020-1 cat bond will provide both RenaissanceRe and the firms joint-venture reinsurance vehicle DaVinciRe with protection, 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 is on an industry loss index trigger basis, across a three-year term for losses specifically from personal, commercial and auto lines of business. One tranche of notes will provide annual aggregate reinsurance protection and the other per-occurrence protection for the beneficiaries.
At launch, the deal had 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%.
That Mona Lisa Re 2020-1 Class A tranche has now grown to $250 million, the upper-end of revised size targets, while the coupon price has now been fixed at 7.5%, so the bottom-end of launch guidance.
The second, Series 2020-1 Class B tranche of notes originally 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%.
The Class B tranche eventually settled at $150 million, below the up to $200 million revised target, while the coupon price guidance has been fixed at 8%, which is again the bottom-end of guidance.
We’re told that for RenRe the pricing has been important and that investors may have supported a larger Class B tranche at a higher coupon, but the sponsor opted to secure the best pricing execution it could.
We understand that the transaction will settle and come on-risk on January 10th.
This Mona Lisa Re cat bond is another efficient route to capital for RenaissanceRe, allowing it to better manage its underwriting exposures while leveraging investor appetite and benefiting from fees or price differentials across the range of sources of capital it manages.
For RenRe, Mona Lisa Re is both a source of retrocession that can be used for managing its inward risks, but also yet another platform where the firm 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.