Global reinsurance giant Swiss Re appears to have had a very successful visit to the catastrophe bond market with its latest and US hurricane focused Matterhorn Re Ltd. (Series 2022-2) deal, upsizing the coverage it will provide to $200 million, while also getting the protection at lower than guidance pricing.
Given market conditions in the catastrophe bond market at this time, as well as the hardening of reinsurance rates, securing a new cat bond issuance at increased size and with pricing below the initial guidance signals a particularly strong execution for Swiss Re in its latest visit to the cat bond market.
As we reported on May 24th, Swiss Re was back in the catastrophe bond market seeking $150 million of retrocessional protection with this new Matterhorn Re deal.
As we explained, the way the issuance was structured suggested that Swiss Re was testing out market appetite with three differently arranged, but similarly risky tranches of notes on offer for cat bond investors.
As we subsequently reported earlier this week, one of the tranches of notes was dropped from the issuance, a Class B tranche of shorter-tenure coupon notes, while a shorter duration Class A trance of zero-coupon notes and a multi-year Class C tranche of coupon notes were still being marketed, although with tighter pricing.
Now, having opted for just the Class A and C tranches, we’re told Swiss Re has secured $200 million of retrocessional reinsurance with this cat bond, an upsizing from the original $150 million initial target.
Now priced, this tenth insurance-linked securities issuance under the Matterhorn Re cat bond program from Swiss Re will complete and settle next week, we understand.
The Matterhorn Re 2022-2 cat bond will provide its sponsor Swiss Re with $200 million of per-occurrence based retrocessional reinsurance protection against certain losses from US named storms, so tropical storms and hurricanes, on an industry loss trigger basis.
As we’d previously explained, the two remaining tranches of notes have the same risk metrics, with an initial expected loss of 3.31% at the base case and an attachment probability of 3.82%.
We can now report that the Class A tranche of notes have priced to provide $125 million of protection to Swiss Re.
The Class A tranche feature zero coupon discount notes that have a term to the end of December 2022, so only cover the 2022 Atlantic hurricane season.
At launch to cat bond investors, the Class A notes were priced at 90% to 90.5% of par, but that guidance was then tightened to 90.25% to 90.75%. We’re now told the Class A notes were finalised with pricing of 91% of par, so below the bottom-end of initial guidance and representing a coupon equivalent of 9% (remembering this tranches term is across roughly 6 months).
The Class C tranche of notes, which are a multi-year and bullet bond layer that cover two wind seasons for Swiss Re to end of December 2023, were finalised at $75 million in size, we can now report.
At launch to investors, these Class C notes were priced with coupon guidance of 9.5% to 10.25%, but that was then tightened as well, to between 9.5% and 10%. We’re now told the finalised pricing will see investors paid a coupon of 9%, so again below guidance.
As said, this is a strong result for Swiss Re and vote of confidence in its approach to the catastrophe bond market this time around, with the issuance upsizing and pricing well below guidance.
Completion of this latest Matterhorn cat bond issuance will see Swiss Re jump a few places higher in our leaderboard of outstanding cat bond sponsors.