SCOR, the global reinsurance company, has successfully priced its latest catastrophe bond Atlas Capital Reinsurance 2020 DAC (Series 2020-1) at its original target size of $200 million, but with pricing now at the top-end of an elevated guidance range.
SCOR had originally returned to the catastrophe bond market in mid-March with its new Atlas Capital transaction, seeking to expand its capital markets backed retrocessional reinsurance with a $200 million deal.
A fortnight or so later, as the impacts of the Covid-19 coronavirus pandemic were being felt widely across capital markets and this began to have an effect on the insurance-linked securities (ILS) market, the reinsurer decided to pull the cat bond deal, withdrawing the Atlas Capital 2020 cat bond issuance until capital markets settled down.
Having temporarily suspended the marketing of the Atlas Capital 2020 cat bond, due to the Covid-19 related market disruption, SCOR explained that it would restart the marketing process for its new cat bond once capital markets were more stable.
So, another fortnight or so later, SCOR returned with the same cat bond transaction, but at the slightly smaller size of $150 million and offering a higher coupon to investors.
Now, the deal has successfully been priced and SCOR has now secured its original target of $200 million of retrocessional reinsurance with this deal.
The Atlas Capital 2020 cat bond will now provide sponsor SCOR with a $200 million source of collateralised retrocessional reinsurance protection against losses from certain named storms and earthquakes.
Atlas Capital Reinsurance 2020 DAC will issue a single $200 million tranche of Series 2020-1 notes that are to be sold to investors, the proceeds of which will be used to collateralise the underlying retro reinsurance agreements with sponsoring entity SCOR SE.
The cat bond will cover SCOR for certain losses from U.S., Puerto Rico, U.S. Virgin Islands and District of Columbia named storm events and U.S., Puerto Rico, U.S. Virgin Islands, District of Columbia and Canada earthquakes across a four-year term.
With the retrocessional reinsurance protection will be based on an industry loss trigger and annual aggregate basis, using regionally weighted PCS reported data.
The single $200 million tranche of Series 2020-1 notes to be issued by Atlas Capital Reinsurance 2020 DAC will have an initial attachment probability of 3.4% and an initial expected loss of 2.84%, both at the base cases.
When this cat bond deal first came to market for SCOR, the notes were offering price guidance in a range from 6.75% to 7.5%.
After the Atlas Capital 2020 cat bond was pulled and then returned to the market at its smaller size, it came with boosted pricing guidance in a range from 7.75% to 8.25%.
Now, having secured the necessary investor interest to support the original $200 million target of retrocession, the notes have priced at the top-end of the higher price guidance, to offer an annual coupon to investors of 8.25%.
It’s quite an uplift in pricing, but given the current pandemic situation and its likely effect on the global reinsurance and retrocession markets, this catastrophe bond may well prove to be good value for SCOR, as it continues to help the reinsurer in diversifying its retro sources using the capital markets.
It’s encouraging that SCOR persisted with its cat bond deal as it will help to give the ILS market and its investors confidence, seeing a transaction come to market and successfully return to its original size.
The pricing will also give ILS funds and investors confidence, as it implies an increase in ILS market return requirements post-Covid-19 and could set a new bar for cat bond transactions to reach, as well as reinsurance and retro more broadly.
You can read all about this Atlas Capital Reinsurance 2020 DAC (Series 2020-1) catastrophe bond from SCOR and every other cat bond transaction in the Artemis Deal Directory.