Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Tailwind Re coupon drops to bottom of reduced guidance for Validus


The Tailwind Re Ltd. (Series 2017-1) catastrophe bond transaction sponsored by Bermudian reinsurance group Validus Holdings is set to be the latest to achieve a significant decrease in its interest spread, as the marketed coupon has now dropped to the bottom of already reduced guidance thanks to strong investor demand.

The Tailwind Re 2017-1 cat bond has been well received by ILS funds and investors we understand, with the transaction significantly oversubscribed which has ultimately helped to achieve more efficient execution and a lower priced coupon for the sponsor.

The deal had already upsized while marketing, growing from the initial $325 million offering into a $400 million offering thanks to demand.

All three tranches of notes on offer have increased in size and now seen their coupon pricing decline significantly as well, reflecting the appetite of ILS investors to assume new risks from a large and recognised reinsurance ceding company.

The Tailwind Re cat bond will secure Validus companies a source of collateralized reinsurance and retro against losses from U.S., Canada, Puerto Rico and U.S. Virgin Islands named storms and earthquakes, on an annual aggregate basis and using industry loss triggers.

The now $150 million (after upsizing) Class A tranche of Series 2017-1 notes from Tailwind Re, which have an initial expected loss of 3.41%, were originally offered to ILS investors with coupon guidance of 7.75% to 8.5%, but that fell to 7.25% to 7.75% while marketing. Sources told Artemis that this tranche will price at the low-end of that reduced guidance, at 7.25%, which is a drop in pricing of almost 11% from the original guidance mid-point.

The now $150 million Class B tranche of notes, with an initial expected loss of 4.43%, were marketed to cat bond investors with initial price guidance of 9.5% to 10.25%, but that dropped to 9% to 9.5%. This tranche are set to price with a 9% coupon, we’re told, a drop in spread of roughly 9% from the initial mid-point.

The now $100 million Class C tranche, the riskiest with an initial expected loss of 5.64%, were offered to cat bond investors with coupon price guidance of 11.5% to 12.5%, but that also dropped to below the initial range, falling to 11% to 11.5%. This tranche are set to price at the low-end again, with an 11% coupon, reflecting a 8% drop in spread during marketing from the initial mid-point.

So for reinsurer Validus this looks like it will be a successful first visit to the catastrophe bond market, with a transaction that has been well-received by the ILS investor base, so has increased in size while the coupon has dropped to below the initially targeted range.

Once again this Tailwind Re 2017-1 catastrophe bond issuance demonstrates to potential sponsors that the catastrophe bond market is absolutely open for business, despite the impact of losses suffered and developing this year.

It also demonstrates that cat bond investors are not demanding enormous price increases, in fact the multiples of expected loss to coupon of recent cat bond deals have been roughly aligned with issues that came out prior to the major third-quarter catastrophe losses.

This Tailwind Re Ltd. (Series 2017-1) catastrophe bond from Validus is expected to price today and complete next week. Read all about it and details on almost 500 other cat bond issuances in the Artemis Deal Directory.

Join us in New York in February 2018 for our next ILS conference

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

ILS NYC 2018
Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.