Transatlantic Holdings, parent company to Transatlantic Reinsurance (or TransRe), is returning to the catastrophe bond market this year with its second ever issuance, a $200 million multi-peril Bowline Re Ltd. (Series 2019-1) transaction.
Transatlantic first visited the catastrophe bond market to source retrocessional reinsurance protection from capital market investors last year, with a successful $250 million Bowline Re Ltd. (Series 2018-1) issuance, that provides it with four years of coverage.
This second cat bond from TransRe seeks to extend this coverage, offering investors the chance to invest in the same group of risks across another four-year risk period, we understand from market sources.
Special purpose insurer (SPI) Bowline Re Ltd. will seek to issue two tranches of Series 2019-1 cat bond notes which will be sold to investors and the proceeds used to collateralize the underlying retro reinsurance agreements between Transatlantic and Bowline Re.
The Bowline Re Ltd. (Series 2019-1) catastrophe bond sees Trans Re seeking to expand its retrocessional reinsurance protection for its portfolio of property catastrophe risks.
The deal will cover business ceded from Transatlantic Reinsurance Company and subsidiaries including TransRe London, TransRe Zurich, Fair American Insurance and Reinsurance Company and Fair American Select, the same as the 2018 transaction.
This new Bowline Re 2019-1 cat bond will provide TransRe and its subsidiaries with a four-year source of annual aggregate retrocessional reinsurance protection on an industry loss trigger basis, across four individual risk periods.
Coverage will be on an industry loss trigger and annual aggregate basis for named storms, earthquakes and severe thunderstorms affecting the United States, Canada, Puerto Rico, the U.S. Virgin Islands and District of Colombia, across each risk period.
Currently sized at $200 million according to our sources, there is every chance this cat bond upsizes, enabling TransRe to expand its capital markets and fully collateralized retro coverage.
Bowline Re Ltd. will issue two tranches of notes, sized at $100 million each currently.
A $100 million Class A tranche is the lower risk layer of notes, with an initial attachment probability of 1.6%, an expected loss of 1.36% and are being offered to investors with price guidance in a range from 4.5% to 5%, we’re told.
A currently $100 million Class B tranche is much higher risk, with an initial attachment probability of 6.08%, an expected loss of 3.69% and are being offered to investors with price guidance in a range from 8% to 8.75%.
For comparison, the Bowline Re 2018 cat bond was a single $250 million tranche with an expected loss of 1.6% and these were priced at 4.5% at issuance.
Hence, this looks like another cat bond in 2019 that will price higher than its previous equivalents, given the lower risk tranche which sits higher up in the reinsurance tower for TransRe could price at the same level as the higher risk 2018 cat bond deal, even at the bottom of guidance.
As a result, the price indications on this latest catastrophe bond to hit the market point towards higher rates for 2019 renewals and new issues, even for those where cat bonds have not been affected by the recent losses (the 2018 Bowline Re cat bond remains loss free).
It’s also notable that TransRe is coming to market roughly two months earlier in 2019 than it did a year ago, despite which the pricing still reflects higher rate levels showing that the reinsurer acknowledges the desire of cat bond investors to secure rate increases and isn’t coming to market early just in the hopes of securing a better deal for itself.
It’s encouraging to see TransRe return and it will be interesting to see how investor appetite for this new cat bond plays out.
We’ll update you as this currently $200 million Bowline Re Ltd. (Series 2019-1) catastrophe bond comes to market and you can read about every cat bond transaction since the market’s inception in the Artemis Deal Directory.