Tokio Marine redeems all $200m of its Kizuna Re II 2018 cat bond

A fortnight ago we reported that Japanese insurance group Tokio Marine was set to redeem a $150 million tranche of its Kizuna Re II Ltd. (Series 2018-1) Japan earthquake focused catastrophe bond, as the notes had not faced any loss events in the three years since their issue.

That would have left a $50 million Class B tranche of notes still in-force until April 2023.

But, it turns out we hadn’t heard the full story at the time and we’re now told that Tokio Marine has opted to redeem the full $200 million of the catastrophe bond, so both the Class A and B tranches of notes.

At the time of issuance of the 2018 cat bond, we had reported that sponsor Tokio Marine & Nichido Fire Insurance Co. Ltd. would have an option to redeem the notes early, if no qualifying loss event occurred in the first aggregate risk period, or if a qualifying event failed to trigger a reinsurance payout.

Tokio Marine’s catastrophe bond backed reinsurance protection from all of its recent issues is structured on a  three-year aggregate basis, across a five-year deal term.

Having this redemption option detailed in the terms of the catastrophe bond means that the sponsor can redeem notes if they haven’t been called on to provide any reinsurance protection after their first three-year aggregate period.

Now, the first three-year aggregate risk period for the Kizuna Re II 2018 catastrophe bond is up and the sponsor has elected to redeem the full transaction.

As a reminder, Tokio Marine recently returned to the catastrophe bond market and sponsored a fresh $150 million cat bond issuance, securing additional reinsurance through the Kizuna Re III Pte. Ltd. (Series 2021-1) transaction that was issued last month.

But with the $200 million of notes from the Kizuna Re II 2018 cat bond now redeemed, it seems Tokio Marine’s cat bond backed reinsurance protection has actually shrunk this year.

We’re told that the redemption and return of capital to investors from the Kizuna Re II 2018 cat bond has already happened and it’s likely many of those investors will have reallocated to its new 2021 cat bond deal.