The Hanover Insurance Group, Inc. is already looking to upsize its first ever catastrophe bond, with the Commonwealth Re Ltd. (Series 2022-1) US named storm issuance now targeting $150 million of reinsurance protection for the US primary insurer.
The Hanover entered the catastrophe bond market as a first-time sponsor just a week ago, as it looked to add multi-year capital markets funding to its catastrophe reinsurance arrangements.
The latest in a string of first-time cat bond sponsors in 2022, it’s encouraging to learn that The Hanover if already seeking to upsize its first cat bond sponsorship, which implies the experience it has had with cat bond funds and investors has been a positive one.
So, we now understand that Commonwealth Re Ltd. will aim to issue $150 million of Series 2022-1 notes to collateralize a reinsurance agreement between the vehicle and The Hanover.
This $150 million of reinsurance will protect The Hanover Insurance Group’s subsidiary insurers 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 Class A notes reinsurance coverage can attach at $1.3 billion of losses to The Hanover and its subsidiaries, exhausting at $1.45 billion, hence the upsizing attempt as this would now see the Commonwealth Re cat bond fill this layer of reinsurance for the sponsor.
The now $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%.
We’re now told that guidance has tightened to between 3.25% and 3.75%, implying a strong result for the carrier, as most catastrophe bonds are still pricing at or above the top of their initial price guidance.