Swiss Re’s latest Matterhorn Re cat bond to settle at $240m

Global reinsurance company Swiss Re has now successfully secured $240 million of retrocession from its latest Matterhorn Re Ltd. (Series 2020-4)  catastrophe bond transaction, taking the firm’s total cat bond coverage under the program to $1.31 billion.

Swiss Re returned to the catastrophe bond market earlier in June, aiming to secure a fourth catastrophe bond issuance of 2020 and a fifth under the Matterhorn Re series.

It’s all part of Swiss Re’s renewed desire for and commitment to, sourcing more of its retro reinsurance protection from insurance-linked securities (ILS) investor and fund sources.

When this latest Matterhorn Re 2020-4 cat bond transaction was launched the target was to secure $200 million of retrocessional protection for U.S. named storm and hurricane risks.

As we explained earlier this week, that target had lifted somewhat, with Swiss Re seeking to raise the size of its latest cat bond deal to provide as much as $275 million of retrocession.

Now though, we’re told by sources that the deal has been priced and will settle on July 1st at $240 million in size for Swiss Re.

So, with the Matterhorn Re Series 2020-4 catastrophe bond Swiss Re will benefit from an additional $240 million of retrocessional reinsurance protection against U.S. named storm and hurricane losses across a term until the end of November 2021, so providing almost two full hurricane seasons of coverage.

Coverage from the new cat bond is on an industry loss trigger and per-occurrence basis, and across the entire U.S. hurricane exposed coastline.

Two tranches of notes will be issued and sold to investors, with the proceeds used to collateralise retro reinsurance agreements between Matterhorn Re Ltd. and Swiss Re.

Both tranches of notes cover the same layer of Swiss Re’s retro program, each having an initial expected loss of 3.24%.

The Class A tranche of notes, which had been offered as a $50 million to $75 million tranche will settle at $65 million in size, we’re told.

The Class A notes had launched to investors with coupon price guidance in a range from 10% to 10.75%, but this tightened towards the bottom-end at between 10% and 10.25% and at pricing yesterday we’re told the coupon was fixed at the bottom-end of 10%.

The Class B tranche offering, which is structured to be issued at a discount to par, so akin to a zero coupon notes arrangement, had targeted $150 million to $200 million of notes, but we’re told is now fixed at $175 million in size.

The Class B tranche launched with pricing guidance offered at 85% to 86% of par value, which then moved to 86% to 86.25% of par (so a reduced coupon equivalent), and we’re told eventually priced at 86.25%, so effectively below the initial price guidance range.

As we highlighted before, Swiss Re seems to have been testing out different payment structures with this cat bond issuance, to see what can deliver it the greatest value in terms of coverage.

It should be remembered that with the coupon based Class A notes there will be a return from invested collateral assets to also consider, where as there may not be with the zero coupon Class B tranche, making it a challenge to accurately compare.

So Swiss Re now has, or as from July 1st when the deal completes, $1.31 billion of retrocessional protection against peak catastrophe losses, all of which has been secured from the capital markets and ILS funds in just over one-year and in five issues.

That’s quite a turn around from the hiatus from catastrophe bond issuance we saw with Swiss Re for numerous years and demonstrates its recognition of the importance of diversified sources of risk capital and the value it can secure from the capital markets as part of its retrocession program.

Alongside its Sector Re collateralised sidecar vehicle, which had grown to over $1.1 billion at the end of 2019, plus the Viaduct Re Ltd. private sidecar Swiss Re has in place with Dutch pension investor PGGM which is up to EUR 250m in size, Swiss Re likely has more than $2.5 billion of third-party capital sourced retrocessional protection in place at a minimum, likely more.

You can read all about this Matterhorn Re Ltd. (Series 2020-4) catastrophe bond from Swiss Re and every cat bond Swiss Re has ever sponsored in our comprehensive cat bond and related ILS Deal Directory.