TransRe has returned to the catastrophe bond market with what will be its third issuance, launching a Bowline Re Ltd. (Series 2022-1) deal through which it is seeking at least $175 million of US and Japanese retrocessional catastrophe reinsurance protection.
Transatlantic Holdings, the Alleghany Corporation owned parent company to Transatlantic Reinsurance (or TransRe), sponsored Bowline Re catastrophe bonds in 2018 and 2019, between them securing $500 million of capital markets backed retrocessional catastrophe reinsurance protection.
Those two previous Bowline Re cat bonds only covered US perils on an annual aggregate basis for TransRe.
But for this third issuance TransRe has added Japanese earthquake risk into the mix and is seeking both aggregate and occurrence PCS industry loss index based retrocessional protection from cat bond investors.
Bermuda-based special purpose insurer (SPI) Bowline Re Ltd. will seek to issue three tranches of Series 2022-1 cat bond notes, that will be sold to investors and the proceeds used to collateralize underlying retro reinsurance agreements between Transatlantic and Bowline Re.
The cat bonds will protect TransRe’s business across all of its main underwriting vehicles, including its US, London and European entities, we understand.
So it will cover business ceded from Transatlantic Reinsurance Company and subsidiaries including TransRe London, TransRe Europe, Fair American Insurance and Reinsurance Company and Fair American Select, as well as any additional subsidiaries or affiliates that it could add in future.
With this new Bowline Re 2022-1 cat bond, TransRe is seeking three years of both annual aggregate and per-occurrence retrocessional reinsurance protection, on an industry loss trigger basis, across the three as yet unsized tranches of notes.
A Class A tranche of notes will provide TransRe with annual aggregate protection against losses from U.S., Puerto Rico, U.S. Virgin Islands, D.C., Canada named storm and earthquake risks, on a territory and business line weighted industry loss trigger basis.
The Class A notes have an initial attachment probability of 2.3%, an initial expected loss of 2.01% and are being marketed to investors with price guidance in a range from 5.75% to 6%, we’re told.
A Class B tranche of notes cover the same perils on the same aggregate and industry index basis as the A’s, but at a much riskier, lower level in TransRe’s retro reinsurance tower.
The Class B notes have an initial attachment probability of 8.27%, an initial expected loss of 6.85% and are being marketed to investors with price guidance in a range from 15.75% to 16.5%.
Both Class A and B tranches feature a franchise deductible per-qualifying loss event.
Finally, a Class C tranche will provide TransRe with per-occurrence retro reinsurance protection against losses from Northeast US named storms and earthquakes, as well as Japanese earthquakes, on a weighted industry loss index trigger basis.
The Class C per-occurrence notes will have an initial attachment probability of 5.3%, an initial expected loss of 3.57% and are being marketed to investors with price guidance in a range from 7% to 7.5%, our sources said.
It’s encouraging to see TransRe looking to expand its cat bond backed reinsurance protection with this third Bowline Re issuance.
Of course, it’s worth remembering that TransRe’s owner, Alleghany Corporation, is being acquired by Berkshire Hathaway, so this new Bowline Re transaction should become the first ever cat bond backing a Warren Buffett owned re/insurer.
Which is notable, as Berkshire Hathaway does not purchase much retrocession for its reinsurance operations, having such a strong balance-sheet of its own.
It could be a case of securing catastrophe retro now over a three-year term for TransRe’s peak perils, allowing its new owners some time to settle into their strategy with locked in multi-year protection for some of their new reinsurers peak cat perils.