Great American Insurance Group’s first visit to the catastrophe bond market with the $95m Riverfront Re Ltd. (Series 2014-1) issuance has resulted in pricing right at the bottom of an already reduced range for the insurer.
For Great American Insurance, its first time sponsoring a catastrophe bond deal appeared to be a very positive experience as the Riverfront Re deals price guidance was lowered the other day. Now Artemis understands that pricing has been set at the bottom of the reduced range, representing real savings and a cost-effective trip to the capital markets for reinsurance cover for Great American Insurance.
The single $95m Series 2014-1 tranche of notes being issued by Riverfront Re were launched with coupon price guidance of 4.25% to 5%. That range was lowered and tightened down to 4% to 4.25% a couple of days ago but pricing has now been set at the bottom end at 4%.
The drop in the amount of interest coupon that Great American Insurance will have to pay to investors in the Riverfront Re cat bond represents a saving of around 13.5% from the mid-point of initial guidance, or as much as a 20% saving if you worked from the upper end of the guidance range.
The Riverfront Re cat bond remained at $95m in size, with the protection covering a $100m layer of Great American’s reinsurance tower. The cat bond attachment point is at $100m of losses to Great American Insurance and subsidiaries and the exhaustion is at $200m, with the sponsor set to retain a 5% share of the ultimate net losses from any covered events (hence the $95m of protection).
The attachment probability for the notes is 1.99%, the exhaustion probability is 0.61% and the expected loss is 1.1%. The Riverfront Re deal provides Great American Insurance and subsidiaries with reinsurance against losses from U.S. named storms, earthquakes (including fire following), severe thunderstorms, and winter storms on an indemnity and per-occurrence basis.
Riverfront Re is expected to complete before the end of the month.