Investor demand for catastrophe bonds continues to be demonstrated by the transactions issued this year as the latest cat bond in the market, the Long Point Re III Ltd. deal sponsored by U.S. insurer Travelers, becomes the latest to upsize during marketing. Almost every cat bond issued in recent months has increased in size to some degree and Long Point Re III continues the trend and increased from its initial size of $150m to become a $250m cat bond deal. The transaction is due to complete around the end of the month.
Long Point Re III Ltd. is a three-year cat bond designed to provide certain named subsidiaries of Travelers with cover for northeastern U.S. hurricane risks. Cover is provided via a reinsurance agreement and on a per-occurrence basis over the three-year period using an indemnity trigger. The single tranche of Series 2012-1 Class A notes cover a percentage of losses between an attachment point of $2 billion and an exhaustion point of $2.5 billion of the ultimate net losses of Travelers in the covered region on a per-occurrence basis. For a loss to qualify under the terms of the deal it must be less than $20m per risk, or building covered under the transaction (this helps to lower the overall risk of the deal).
As well as upsizing considerably, sources tell us that pricing guidance has been lowered for the Long Point Re III cat bond deal. The Class A notes were originally expected to pay investors a coupon of between 6.25% and 7% but that guidance has been lowered to a range of 6% to 6.25%. This is one of the first cat bonds where pricing has gone down during marketing recently, with the majority either pricing towards the top level of the published range or even pricing above it.
With the increase in size of Long Point Re III the catastrophe bond markets total issuance for 2012 so far has passed $3.5 billion, a pretty healthy figure for half way through the year. According to our Deal Directory the half-year total issuance volume looks like it will be $3.588 billion from 16 transactions unless this deal or Residential Re 2012 upsize further before close. A healthy number which sets the market well on its way to clearing $6 billion by year end.
We’ll update you as the latest cat bonds close.