The price guidance has been lowered for Tokio Marine & Nichido Fire Insurance Co’s fifth Kizuna Re catastrophe bond, making the $150 million Kizuna Re III Pte. Ltd. (Series 2021-1) transaction the latest to see its pricing fall during marketing.
Every property catastrophe bond issued or priced so far in 2021 has seen its pricing decline while being marketed to investors and in fact the majority have seen their pricing decline to the bottom end of initial spread guidance or even lower.
It signals strong appetite from catastrophe bond investor and attractive risk spreads for ceding companies, even when reinsurance rates are still being talked up for the upcoming renewals.
Tokio Marine returned to the catastrophe bond market just a fortnight or so ago, electing to sponsor this new Kizuna Re catastrophe bond issuance out of Singapore.
Kizuna Re III Pte. Ltd. continues to target the issuance of $150 million of Class A Series 2021-1 notes, that will be sold to investors and the proceeds used to collateralize underlying reinsurance agreements between the issuer and Tokio Marine & Nichido Fire Insurance.
The reinsurance coverage from the cat bond will protect the sponsor against losses from Japanese earthquakes, including losses from related impacts caused by shake, tsunami, fire, flooding and sprinkler leakage, on a three-year aggregate and indemnity basis, across a five year term.
The still $150 million of Class A Series 2021-1 cat bond notes that Kizuna Re III Pte. Ltd. proposes to issue have an initial expected loss of 1% on a three-year basis, we understand, which is 0.33% annualised.
The notes were at first offered to catastrophe bond investors with risk interest spread guidance of 2.25% to 2.5%.
However, the strong demand for cat bonds from funds and investors means that this has now been lowered and narrowed to a revised range of 2% to 2.25%, so below the initial guidance.
Meaning that, once again, a 2021 catastrophe bond issuance looks set to price at the bottom of initial spread guidance, or even lower.
Sponsors are securing multi-year and fully collateralized reinsurance coverage at attractive pricing in the catastrophe bond market right now, which we understand is heightening interest in the marketplace.
That should help to stimulate more deal-flow and drive issuance higher, as more sponsors look to test out the appetite of cat bond funds and investors in 2021.
However, while the price guidance has dropped, with an annualised expected loss of 0.33%, this new Kizuna Re cat bond, even if it prices at the bottom of reduced guidance at 2%, will still be priced higher on a risk adjusted basis than the riskier Class B tranche of notes from the Kizuna Re II 2018 cat bond, which had an annualised initial expected loss of 0.99% and priced with a coupon of 2.5%.
So the market has still set a higher price minimum it seems, but right now this is perhaps looking attractive compared to some traditional reinsurance sources.