Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Second Blue Halo Re cat bond launches, sponsored by Allianz


A second catastrophe bond issuance from the Blue Halo Re special purpose insurer (SPI) has been launched to investors, a Blue Halo Re Ltd. (Series 2016-2) transaction, with sponsor Allianz Risk Transfer seeking another $100m or more of reinsurance coverage for U.S. named storms and earthquakes.

Allianz Risk Transfer is back to the capital markets for the second time in just over one month, as the alternative risk transfer and fronting arm of insurance and reinsurance firm Allianz seeks to secure more retrocessional protection.

We understand that part of the rationale for these Blue Halo Re cat bonds is to cover risks assumed and retained through the fronting work Allianz undertakes with ILS fund managers such as Nephila Capital, with some if not all of the risks notionally covered by the cat bonds coming from those arrangements.

In this second Blue Halo Re issuance, the vehicle will seek to issue a single tranche of Series 2016-2 Class C cat bond notes which has a preliminary size of $100m.

The Blue Halo Re 2016-2 notes will provide Allianz Risk Transfer with a three-year source of fully collateralised retrocessional reinsurance protection against industry losses caused by U.S. named storms (so tropical storms, hurricanes and any storm that has been named by the NHC) across all U.S. storm exposed states, including Florida, the Gulf Coast and east coast, as well as U.S. earthquake risks in all states.

The Blue Halo Re 2016-2 cat bond notes will feature a state-weighted industry loss index trigger, with PCS providing the loss reporting and the reinsurance protection for this second Blue Halo Re is afforded on an annual aggregate basis.

That’s one key difference to the 2016-1 issue just over a month ago. Blue Halo Re 2016-1 was a term aggregate cat bond, so the aggregation of losses ran across the term of the deal, where as this new 2016-2 cat bond aggregates on an annual basis.

A number of cat bond investors we discussed the original Blue Halo Re cat bond with had queried the term aggregate nature and had expressed a preference for transactions that aggregate over annual risk periods instead of the deal-term.

We understand that these notes are less risky than the two tranches issued in June through the $185m Blue Halo Re Ltd. (Series 2016-1) transaction, with the attachment point of this Class C tranche of notes attaching at an industry loss index value of 1.7bn and covering losses up to an exhaustion point at 1.85bn, with a franchise deductible per qualifying loss of 25m.

That means the Blue Halo Re Series 2016-2 Class C notes are the least risky issued so far, but will continue the coverage further up the tower for Allianz Risk Transfer, sitting above the two tranches sold in the previous issuance.

The Series 2016-2 Class C notes have an attachment probability of 4.28% at the base case, or 4.82% at the WSST sensitivity case, and an expected loss of 3.99% base and 4.49% sensitivity.

The notes are being offered to investors with coupon price guidance of 8% to 8.75%, we understand, which would result in a base multiple of over 2x’s, even at the low-end of guidance and a sensitivity case multiple of 1.8x’s at the lower end of price guidance.

Unsurprisingly the multiples look like they will be higher than the previous two Series 2016-1 tranches offered, as is typical when the coupon comes down.

Aon Securities is again acting as sole structuring agent and book runner for this Blue Halo Re Ltd. (Series 2016-2) cat bond issuance, while AIR Worldwide is risk modelling and calculation agent.

This cat bond will be a July issuance we’re told, with Allianz targeting completion before the end of the month.

We will update you as the transaction comes to market and you can read all about this and every other cat bond transaction in the Artemis Deal Directory.

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