Insurance and reinsurance group Amlin Plc’s second catastrophe bond transaction Tramline Re II Ltd. (Series 2013-1) has seen its price guidance narrow while the cat bond has been marketing. The transaction has only seen a very slight change in interest spread guidance, likely as it began marketing with a low coupon rate.
Amlin is looking for a source of retrocessional protection for its reinsurer subsidiary Amlin AG. The Tramline Re II cat bond will provide Amlin AG with a multi-year source of fully-collateralized retrocessional reinsurance for certain of its U.S. and Canadian earthquake risks, including fire following.
The protection will be on a per-occurrence basis and the cat bond structure features an industry loss trigger using a state weighted PCS index for U.S. earthquake risks, while for the Canadian earthquake risks the PCS index will be weighted by province.
The transaction has a four-year term, with maturity slated to be in July 2017. The attachment point for the notes is at an index level of $325m and the exhaustion at $425m, with an attachment probability of 1.49%, an exhaustion probability of 1% and an expected loss of 1.21%.
The notes began marketing with an interest spread guide range of 3.25% to 3.75% and the size of the issuance was marketed as at least $75m. We understand that the spread guidance has been narrowed slightly to 3.25% to 3.5% yesterday and that the deal is due to price tomorrow, Wednesday. At this stage we don’t know whether the deal has increased in price, although we think it still likely to as investors we’ve spoken with have told us they are keen to access this transaction.
The initial price guidance for these notes was already relatively low for the risk profile of the deal and it didn’t have much room to drop. This is likely because the deal arrangers and bookrunners have become more familiar with the current pricing appetite for cat bonds and we perhaps won’t see the large reductions in price that we saw earlier this year as regularly now.
We understand that this cat bond will complete during the month of June, so contributing to the Q2 and first-half of 2013 issuance total. Some of the other deals currently in the market may not complete until July we understand.