Swiss Re is back in the catastrophe bond market to sponsor its first issuance of the year and in a shift from the recent occurrence cat bonds it has sponsored, this new deal sees the reinsurance giant looking for $200 million or more in annual aggregate retrocessional protection with a Matterhorn Re Ltd. (Series 2022-1) transaction.
This is Swiss Re’s first Matterhorn Re Ltd. catastrophe bond issuance of 2022, but its eighth issuance under the Matterhorn Re cat bond program since it was launched in 2019.
It’s also the second Matterhorn Re cat bond in relatively quick succession from Swiss Re, following a $150m Matterhorn Re 2021-1 deal that the reinsurer sponsored in December 2021.
With this first Matterhorn Re cat bond of 2022 the reinsurer is looking to secure annual aggregate protection against certain losses caused by two of its peak perils, on an industry loss basis.
Which is notable, as every other Matterhorn Re cat bond so far has been per-occurrence, in the nature of the retrocessional reinsurance protection they provided to Swiss Re.
The shift to an annual aggregate retro focus could be in response to wider reinsurance market conditions, with aggregate covers more expensive and less available, while retro capacity in general has been dented, all of which has helped to make the catastrophe bond market an attractive source of well-defined and structured aggregate protection, at still attractive pricing.
We understand that Matterhorn Re Ltd., Swiss Re’s Bermuda based special purpose insurer, is seeking to issue $200 million or more of notes across two tranches of Series 2022-1 cat bond notes, which will be sold to investors and the proceeds used to collateralise retrocessional reinsurance agreements between the SPI and sponsor Swiss Re.
With the protection from both tranches structured using an industry loss index trigger and on an annual aggregate basis, Swiss Re is aiming to secure at least the $200 million of collateralized retrocessional reinsurance to protect it against certain U.S. named storm and U.S. and Canadian earthquake losses with this Matterhorn Re 2022-1 cat bond deal, we’re told.
The two tranches of notes will provide Swiss Re with collateralized retrocession across a term that will run until late March 2025, we understand, so the new cat bond will provide three years of annual aggregate protection.
Both tranches of notes are currently sized at $100 million each, we understand.
The Class A tranche of notes is the less risky of the two, having an initial attachment probability of 2.7%, an expected loss of 2.11% and being offered to cat bond investors with coupon pricing guidance in a range from 5.25% to 5.75%.
The Class B tranche, which is the riskier layer of notes, comes with an initial attachment probability of 5.25%, an expected loss of 3.79% and being offered to cat bond investors with coupon pricing guidance in a range from 7.75% to 8.5%, our sources said.
The mid-points of price guidance suggest multiples that are aligned with other recent cat bond issues, but as ever with an aggregate cover it will be interesting to see how the cat bond investor base responds.
Finally, we’re told this is the first of the Matterhorn Re cat bonds from Swiss Re to utilise the SOFR benchmark reference, SOFR +6bps in this case, having shifted from the now set to become obsolete Libor plus approach.
Swiss Re has so far secured $1.76 billion in retrocessional reinsurance protection from the seven previous Matterhorn Re cat bond issues.
After this new cat bond completes, the program will represent approaching, or perhaps more, than $2 billion of capital markets backed retro limit secured by Swiss Re.
This latest Matterhorn cat bond issuance will also boost Swiss Re back up our leaderboard of outstanding cat bond sponsors.