SCOR adjusts Atlas cat bond to reduce risk, manage pricing, target up to $175m

Artemis has learned that French reinsurance company SCOR has adjusted some terms of its new Atlas Capital DAC (Series 2024-1) catastrophe bond issuance, as the company has reduced the risk somewhat in an effort to manage pricing, while also lifting the target size to $175 million.

SCOR returned to the catastrophe bond market a fortnight ago with an initial target to secure $125 million or more in North America focused wind and quake retrocessional reinsurance coverage with this new catastrophe bond.

This issuance appears designed to replace a soon to mature 2020 Atlas cat bond issuance, which was $200 million in size and covered the same North American perils for SCOR.

SCOR has been a regular user of catastrophe bonds within its retrocessional reinsurance program since its first Atlas transaction in the year 2000, alongside other forms of traditional and capital markets capacity.

Details on every cat bond SCOR has sponsored can be found in our Deal Directory.

We are now told that SCOR has taken what is a slightly unusual step of adjusting some of the risk metrics of its new Atlas Capital 2024-1 catastrophe bond.

The adjustments have been made to reduce the risk of attaching and the expected loss somewhat, which appears a move to manage the risk-adjusted pricing level and to get this new cat bond cover settled within a range of pricing SCOR deems acceptable, we believe.

At the same time, we’re told that SCOR is now targeting $175 million of retro protection from this new cat bond.

This Atlas Capital DAC 2024-1 catastrophe bond will provide SCOR with a targeted $175 million of annual aggregate and state-weighted industry loss trigger based retro reinsurance protection for losses from US named storms and earthquakes, as well as Canada earthquakes, over a roughly three year term to the end of May 2027.

At launch a few weeks ago, the single tranche of Class A notes were marketed with an initial attachment probability of 4.54% and an initial base expected loss of 3.87%.

Now, we’re told SCOR has adjusted some of the payout factors for its new cat bond deal, specifically the fact that now no named storm or earthquake payout factor can exceed 10%, while in addition the payout factor for Puerto Rico named storms is capped at 1.5%, we’re told.

That has the effect of lowering exposure concentrations for the cat bond notes, while reducing their likelihood of attachment somewhat.

We’re now told that the $125 million to $175 million of Atlas Capital DAC 2024-1 Class A catastrophe bond notes have an initial attachment probability of 3.88% and an initial base expected loss of 3.26%, so lower than the launch figures.

With the risk lowered you might have thought the price guidance would be too.

But, reflecting the widening of spreads and rising prices for catastrophe bond coverage that we’ve seen of late, we’re now told these notes are being marketed with price guidance of 13%, so higher than the initially offered range of 11% to 12%.

Subsequently, we were then told that the spread is back to being offered in a range again, of 12.5% to 13%.

As a result, with the price higher even as the risk has fallen, the risk-adjusted price increase for this cat bond is relatively high, it appears.

SCOR is managing its retrocession needs versus market pricing with these moves, adjusting the risk down slightly for this cat bond in order to keep the pricing within an acceptable range, we believe.

You can read all about this Atlas Capital DAC (Series 2024-1) catastrophe bond from SCOR and every other cat bond transaction in the Artemis Deal Directory.