The latest catastrophe bond from U.S. property & casualty insurance giant Travelers, Long Point Re III Ltd. (Series 2018-1), is set to reach the increased target size of $500 million thanks to appetite from investors we understand, so will provide the firm with its largest yet source of capital markets backed multi-peril reinsurance capacity.
It’s the sixth catastrophe bond to be sponsored by Travelers and to date the largest was its first Longpoint deal which was also $500 million but only provided the insurer with U.S. hurricane reinsurance protection.
The insurer had initially launched the Long Point Re III 2018-1 cat bond at a size of $300 million, but as we reported earlier this week the indications all pointed to an upsizing to somewhere from the launch target to $500 million.
Now we’ve been told the latest Travelers cat bond is set to achieve the raised $500 million target, while at the same time the pricing is likely to settle at a lower level, below the initially marketed range.
The cat bond will now provide Travelers with a four-year source of fully-collateralized reinsurance protection against losses from the multiple U.S. perils of tropical cyclones, earthquakes, severe thunderstorms and winter storms, all on an indemnity trigger and per-occurrence basis.
The $500 million of Long Point Re III 2018-1 Class A notes, with an initial expected loss of 1.214%, were initially offered to cat bond investors with coupon price guidance in a range from 3% to 3.5%, a range which subsequently dropped to 2.75% to 3% during marketing and we now understand has been fixed at the lowest end at 2.75%.
So with a multiple of around 2.3 times the initial expected loss the notes will be roughly aligned with other recent cat bond transactions at this risk level, but it is a significantly lower multiple than Travelers last cat bond achieved in 2015 (around 3.3 times the initial EL).
Once completed later this month Travelers new cat bond will provide it with capital markets backed reinsurance protection across 100% of a $500 million layer of its per-occurrence tower, attaching at $1.9 billion and covering losses up to $2.4 billion for the insurer.
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