Once again the market is showing its position on price, as Florida takeout insurer Safepoint Insurance Company’s first catastrophe bond Manatee Re Ltd. (Series 2015-1) prices at the top end of guidance at an increased size of $100m.
The cat bond market has shown consistent signs over the last six months or more that there are pricing points beyond which investors will not support new issues. In the case of Safepoint’s Manatee Re 2015-1 cat bond we’re told that it’s likely that a premium has been provided due to the start-up nature of Safepoint’s business.
Firstly though, the Manatee Re 2015-1 cat bond issue, which sees a single Class A tranche of notes being sold to investors to collateralize a reinsurance contract providing the Floridian insurer with three hurricane seasons worth of Florida named storm coverage, on an indemnity and per-occurrence basis, has upsized by one-third.
The single tranche of notes began life at $75m in size, as Safepoint looked to tap the capital markets for reinsurance for the first time, when we first covered the deal here. Now, at final pricing we understand that the tranche has grown by 33% to provide Safepoint with $100m of reinsurance protection. That means the cat bond will cover 50% of the losses within the $200m reinsurance layer, from the $120m attachment point up to the $320m exhaustion point.
The notes were marketed with a price guidance range of 4.25% to 5%, which we no understand to have been set at the upper end at 5% above the collateral return.
With the base expected loss set at 0.99% and the sensitivity case at 1.15%, the Manatee Re 2015-1 cat bond offers investors a high multiple at 5 times or more. Again, the likely reasoning behind the premium paid is due to the start-up nature of Safepoint, its lean business model which sees it outsourcing some functions such as claims and also the fact it is a first time sponsor.
There may also have been some uncertainty around the quality of the covered portfolio, given the depopulation process tends to see lower quality properties offloaded by Citizens to private insurance companies, which could also have affected the investors opinion on price.
The deal features a variable reset feature, but after a reset we understand that the coupon must remain within a range of 4.75% to 5.71%.