Japanese insurance and reinsurance giant Sompo has doubled its target for its latest catastrophe bond with its Sakura Re Ltd. (Series 2021-1) transaction now aiming to secure the company $400 million of Japanese and US multi-peril catastrophe reinsurance protection.
Sompo returned to the catastrophe bond market for the first time in four years recently, with its first multi-peril catastrophe bond deal to provide the company with a source of multi-peril and also multi-region, first and second-event catastrophe reinsurance protection.
Sompo has established a new Bermuda based special purpose insurer named Sakura Re Ltd. for the issuance and while Sompo Japan Insurance is the ceding company and immediate beneficiary, this new catastrophe bond will also cover losses under its affiliates, including Bermuda based underwriting unit Sompo International.
Aon’s protected cell company White Rock Insurance will act as a ceding reinsurance entity for the purposes of this catastrophe bond, sitting between Sakura Re Ltd. and Sompo to deliver the reinsurance protection.
Sakura Re Ltd. will issue two tranches of Series 2021-1 notes and the initial target was for these to be $100 million each, for a total reinsurance coverage of $200 million.
But now this target has been doubled, with each tranche now targeting $200 million of coverage, for total reinsurance protection of $400 million.
At the same time, the price guidance has been adjusted for each tranche, with the deal now looking likely to come in at the mid-point of initial guidance, or better for Sompo.
Each of the tranches of notes will provide catastrophe reinsurance to Sompo and its subsidiaries across a four-year term and on an indemnity trigger and per-occurrence basis.
With both of the tranches now doubled in size, the issuance looks like this.
Sakura Re will issue a now $200 million tranche of Series 2021-1 Class A notes which are exposed to Japanese typhoons and floods on a first-event basis and if limit is remaining after a first loss, they would also cover US earthquakes on a second-event basis.
The now $200 million of Class A notes have an initial expected loss of 0.99% and were first offered to cat bond funds and investors with spread guidance of 2.5% to 3%. Now, we’re told that this pricing range has been lowered to 2.25% to 2.5%.
Sakura Re will also issue a now $200 million tranche of Series 2021-1 Class B notes, which will be exposed to US earthquakes on a first-event basis and if limit is remaining after a loss, then would also cover Japanese typhoons and floods on a second-event basis.
The now $200 million of Class B notes are a little riskier, with an initial expected loss of 1.17%. These notes were first offered to cat bond funds and investors with spread guidance of 3.75% to 4.25%, but we’re told this has been reduced and fixed at the mid-point of 4%.
So it looks like Sompo is going to maximise the coverage by doubling this first Sakura Re cat bond offering to $400 million, while at the same time pricing looks set to come in at the mid-point or lower across the deal.
Interestingly, it looks like the B tranche of notes will be the first 144a cat bond notes of 2021 to price at the mid-point, as every other tranche has priced down so far this year.
That is likely due to the novel structure and innovative way coverage is being delivered, as investors often demand a small premium for any new features such as this.