In another sign of increasing equilibrium in the catastrophe bond market, first time sponsor The Hanover Insurance Group, Inc. has secured its Commonwealth Re Ltd. (Series 2022-1) cat bond at the upsized $150 million target, with pricing finalised at the low-end of initial guidance.
The Hanover entered the catastrophe bond market earlier this month as a first-time sponsor, looking to add multi-year capital markets funding to its catastrophe reinsurance arrangements.
Targeting US named storm reinsurance protection for The Hanover, the Commonwealth Re cat bond launched with a $100 million target, but this was soon increased to $150 million, which we’re now told the insurer has secured.
As a result, Commonwealth Re Ltd. will issue $150 million of Series 2022-1 notes to provide The Hanover Insurance Group’s subsidiary insurers with reinsurance against certain losses from named storms (so tropical storms and hurricanes, as well as related perils) on a per-occurrence and indemnity trigger basis over a three year period, across northeast US states.
The now confirmed as $150 million of Class A notes will provide their coverage from an attachment point of $1.3 billion of losses to The Hanover and its subsidiaries, exhausting at $1.45 billion, with the upsizing meaning the cat bond can fill this layer of reinsurance for its sponsor.
The $150 million of Series 2022-1 Class A notes come with an initial expected loss of 0.54% at the base case and were first offered to cat bond investors with price guidance in a range from 3.5% to 4%.
That price guidance was then tightened to between 3.25% and 3.75%, which may have been a little ambitious in the current harder priced cat bond market.
But we’re now told that the price has been finalised with the Commonwealth Re cat bond set to pay investors a 3.5% coupon, which was the bottom of the initial spread guidance.
While this is a significant multiple, still reflecting the much wider cat bond spread environment, this is now the third cat bond to price within guidance of late, suggesting the widening has slowed or even stopped and the market has become more balanced.
This is a very good result for The Hanover, as a first time sponsor.