Japanese primary insurance group Sompo Japan and Nipponkoa’s (SJNK) new Aozora Re Ltd. (Series 2016-1) catastrophe bond has now priced at the lowest-end of the initial guidance and achieving the upsized $220m of reinsurance protection for the firm.
When the Aozora Re 2016-1 catastrophe bond launched earlier this month, SJNK was seeking to grow the capital markets share of its reinsurance program, specifically for losses from Japanese typhoons.
The deal launched as a $175m cat bond, but soon upsized to $220m as investor demand once again helped a sponsor to maximise its collateralised reinsurance protection. The diversifying nature of Japanese typhoon risk and competitive traditional reinsurance pricing for that peril no doubt also helped drive the pricing down.
The Aozora Re 2016-1 cat bond launched with coupon guidance of 2.2% to 2.7%, which was quickly lowered down to guidance at the bottom end of that range, at the same time as upsizing, which is where the transaction finally priced.
With an initial expected loss of 0.9% that means the cat bond issuance will result in $220m of per-occurrence fully-collateralised Japan typhoon reinsurance protection on an indemnity basis, with SJNK paying a multiple of 2.44 times the expected loss for it.
While the pricing is lower than SJNK’s last cat bond, although the risk profile was different, it is really only aligned with price declines seen in traditional reinsurance markets for this peril and likely to be seen at the April 1st renewal.
The transaction closes next week, before the end of March. SJNK will be delighted with the support of the ILS market and its investors, helping the insurer to increase its capital market reinsurance cover at very keen pricing.