Tokio Marine to redeem $150m of its Kizuna II 2018 cat bond

Sources have told us that Japanese insurance group Tokio Marine has opted to redeem a $150 million tranche of its Kizuna Re II Ltd. (Series 2018-1) Japan earthquake focused catastrophe bond, as the notes have not faced any loss events in the three years since their issue.

At the time of the 2018 cat bond being issued, we explained 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 risk period, or if a qualifying event failed to trigger a reinsurance payout.

Tokio Marine’s catastrophe bond backed reinsurance protection from all 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.

We’re told that, out of the $200 million Kizuna Re II 2018-1 cat bond issuance only the $150 million tranche of Class A notes are being redeemed early, leaving a riskier $50 million tranche still in-force for the remainder of the deal term, that runs to April 2023.

The redemption and therefore return of principal to investors in the $150 million Class A Series 2018-1 tranche of notes issued by by Kizuna Re II Ltd. should happen in the next week or so, we understand.

Tokio Marine recently completed a fresh $150 million catastrophe bond issuance, securing reinsurance through the Kizuna Re III Pte. Ltd. (Series 2021-1) transaction that was issued last month.

Options to redeem cat bonds add flexibility for the sponsors in their reinsurance arrangements, enabling them to lock-in the longer-term coverage, but restructure and come back to market to issue new bonds should it prove appealing and no qualifying losses or reinsurance recoveries under the cat bond notes have occurred.