U.S. primary property & casualty insurance giant Travelers has increased its target for the recently launched Long Point Re III Ltd. (Series 2018-1) catastrophe bond transaction, from which the firm is now aiming for up to $500 million of collateralized multi-peril reinsurance protection.
This new cat bond is set to replace, renew and extend a $300 million Long Point Re III 2015-1 which matures later this month, as this 2018 cat bond seeks a four-year source of fully-collateralized reinsurance protection, a year longer than the expiring deal
When it launched, SPI Long Point Re III Ltd. was looking to issue a single Series 2018-1 Class A tranche of notes with a target of a $300 million issuance, so fully replacing the maturing 2015 cat bond coverage.
Now, we understand from sources that Travelers target has risen and this new Long Point Re III 2018 cat bond could complete at anywhere up to $500 million in size, as the insurer looks to increase the role of the capital markets in its reinsurance tower.
The Long Point Re III 2018-1 Class A notes will provide Travelers and subsidiaries with a collateralized source of reinsurance protection against losses from U.S. tropical cyclone, earthquake, severe thunderstorm and winter storm perils, across a covered area that is the usual northeastern U.S. states.
The now up to $500 million of Class A notes issued will provide Travelers with reinsurance protection on a per-occurrence basis across the four-year term, with any payouts decided using an indemnity trigger approach.
The up to $500 million of Long Point Re III 2018-1 Class A notes, which have an initial expected loss of 1.214% and attach at $1.9 billion of losses, covering a $500 million layer up to $2.4 billion, were initially offered to cat bond investors with coupon price guidance in a range from 3% to 3.5%.
Now, we’re told that the guidance has been slashed to below the initial range, with the up to $500 million of notes now offering investors a coupon from 2.75% to 3%.
It would not be surprising to see Travelers take advantage of investor appetite to upsize the cat bond to $500 million, so the capital markets will fill that layer of its reinsurance tower.
The reduced coupon guidance range represents very keen pricing though, so it will be interesting to see where this deal settles.
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