The latest catastrophe bond from Japanese primary insurance group Tokio Marine & Nichido Fire Insurance Co. Ltd. has now been priced and we understand that all three tranches of the $200 million Umigame Re Pte. Ltd. (Series 2021-1) issuance have seen their coupons finalised at the low-end of reduced guidance.
Catastrophe bonds continue to price right down, as investor demand drives capital into the market and results in strong pricing execution for sponsors.
Tokio Marine & Nichido Fire returned to the catastrophe bond market earlier this month, with this new Umigame Re 2021-1 transaction the insurers first multi-peril cat bond transaction that we have listed in our Deal Directory.
In fact, this is Tokio Marine’s first cat bond issuance to cover Japanese typhoon risks since 2011, while the insurer is also seeking reinsurance protection against Japanese flood losses through this transaction.
Singapore domiciled Umigame Re Ptd. Ltd. is set to issue three tranches of notes, to provide reinsurance protection running across four risk periods, offering Tokio Marine almost four years of reinsurance from the capital markets running up to the end of March 2025.
The reinsurance will protect the sponsor against certain losses from Japanese typhoons or Japanese flood events, on an indemnity trigger and per-occurrence basis.
The way the cat bond is structured means that one of the tranches is able to provide first-event coverage to one layer of the insurers reinsurance tower, or second and subsequent event coverage to another.
The deal did not upsize, remaining at US $200 million for the duration of its marketing. However the pricing declined across all three tranches of notes on offer from Umigame Re Pte.
Umigame Re will issue a $100 million Class A-1 tranche of notes to provide first-event typhoon or flood protection to a higher layer of the reinsurance tower, attaching at JPY 400 billion.
This tranche of Class A-1 notes have an initial expected loss of 1.31% and were first offered to cat bond investors with price guidance in a range from 2.5% to 2.75%.
The Class A-1 notes guidance was revised to between 2.25% and 2.5%, but we’re now told the coupon has been fixed at the low-end of 2.25%, which is a roughly 14% decline in price from the initial mid-point.
A $50 million Class B tranche of notes will provide typhoon and flood protection across a lower layer of the reinsurance tower, attaching at JPY 220 billion.
This Class B tranche of notes will have an expected loss of 3.14% and were first offered to cat bond investors with price guidance in a range from 5% to 5.75%.
The Class B notes guidance was also been lowered, to 4.75% to 5%, and we’re now told this has also been fixed at the low-end of the revised range, at 4.75%, which represents a roughly 12% drop in price.
The final currently $50 million Class A-2 layer are the ones that can provide coverage to either layer of the reinsurance tower, in offering additional first-event coverage to the higher layer attaching at JPY 400 billion, or second and subsequent events affecting the lower layer at JPY 220 billion.
The Class A-2 notes have an initial expected loss of 1.32%, which brings together both the coverages this layer offers we understand, and were first offered to investors with coupon price guidance in a range from 2.75% to 3%.
Again, the price guidance for the Class A-2 notes was reduced to 2.5% to 2.75%, and we’re now told has the coupon has been fixed at the low-end of that updated range, at 2.5%, representing a roughly 13% drop in price from the initial mid-point.
As a result, Tokio Marine will secure its targeted $200 million of reinsurance from the capital markets with this latest catastrophe bond with an average price drop of approximately 13% while marketing, another expression of the strong demand for cat bonds at this time.