Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Sanders & Aozora cat bonds both price below initial guidance


In a further demonstration of catastrophe bond and insurance-linked investor demand, both the $375 million Sanders Re Ltd. (Series 2017-1) from Allstate and the $480 million Aozora Re Ltd. (Series 2017-1) cat bond from Sompo have priced at levels below their initial guidance.

Continuing the trend seen since last year, cat bond issues have largely seen their pricing tumble as investor demand helps marketers to secure more attractive rates-on-line for cat bond backed reinsurance cover in this quarter.

Every transaction in Q1 of 2017 has seen its coupon pricing tumble, as spreads typically get reduced and tightened, before being fixed in most cases at the bottom of an already reduced guidance range.

Today, Allstate’s latest catastrophe bond, Sanders Re 2017-1, was priced at the low end of already reduced guidance.

The Sanders Re 2017-1 U.S. multi-peril cat bond launched as a $300 million issuance with price guidance of 3.25% to 3.75%, which was subsequently reduced to 3% to 3.25% and we understand at pricing today this was fixed at the bottom of that new range at 3%.

With an expected loss of 0.86% Allstate’s cat bond will offer investors a multiple of almost 3.5 times the EL, which is actually quite high compared to other recent cat bond deals, but that likely reflects the multi-peril nature of the cover as well as Allstate’s broad reach and huge portfolio.

Meanwhile, Sompo Japan Nipponkoa’s Japan typhoon Aozora Re 2017-1 cat bond began as a $270 million deal offering a coupon in a range from 2.15% to 2.65%. This transaction increased in size significantly to $480 million, while the price guidance was first reduced to 2% to 2.15%, before being fixed at the bottom end at 2%, which is where it stayed and the notes have now been priced at, we understand.

With an expected loss of 1.14% the Aozora Re 2017-1 cat bond will offer investors a multiple of just 1.75 times the EL, which likely reflects the appetite for diversifying Japanese typhoon risk and the way that peril region gets discounted in the traditional reinsurance marketplace.

Catastrophe bonds are proving an incredibly cost-efficient source of reinsurance for all recent sponsors, with every transaction in recent weeks securing low-pricing thanks to high investor demand.

This demand is likely to continue through the rest of the year, as even though the first-quarter of 2017 is now set to break another cat bond issuance record it is not sufficient to satisfy ILS investor demand for new paper.

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