The Travelers Companies, the property & casualty insurance giant from the United States, has returned to the catastrophe bond market for the first time in four years, seeking to renew at least a portion of its capital markets backed reinsurance by sponsoring a $300 million or larger Long Point Re IV Ltd. (Series 2022-1) issuance.
Travelers first sponsored a cat bond as a component of its reinsurance program back in 2007, following up on that initial deal with three others that all covered only U.S. hurricane risks over the next few years, in 2009, 2012 and 2013.
Travelers then returned to the cat bond market in 2015 with its first multi-peril cat bond, a $300 million Long Point Re III 2015-1 which was renewed and expanded on in 2018, with the $500 million Long Point Re III Ltd. (Series 2018-1) issuance.
That 2018 catastrophe bond matures in the next few weeks and so this new issuance from Travelers will look to renew at least some of that capital markets backed reinsurance protection for the insurer.
For 2022, our sources said that Travelers has established a new company, expected to be licensed as a Bermuda domiciled special purpose insurer (SPI), named Long Point Re IV Ltd.
Long Point Re IV Ltd. will seek to issue a single tranche of Series 2022-1 Class A notes that will be sold to investors and the proceeds used to collateralize a reinsurance agreement between the SPI and Travelers.
The reinsurance arrangement will cover Travelers against the same perils as its 2018 cat bond, so U.S. tropical cyclone, earthquake, severe thunderstorm, and winter storm events, across Northeastern U.S. states only.
The covered area is the states of Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Vermont.
The Long Point Re IV 2022-1 cat bond will provide reinsurance to Travelers and subsidiaries that include the usual insurance companies, Travelers Indemnity, Travelers Casualty & Surety, St. Paul Fire and Marine and The Standard Fire Insurance Company, as well as any associated subsidiaries of each.
The Long Point Re IV 2022-1 cat bond notes will provide Travelers with this reinsurance across a four year term, with maturity slated for June 1st 2026, on an indemnity trigger and per-occurrence basis, we’re told.
Long Point Re IV will seek to issue at least $300 million of Class A notes, we understand, so at least partially replacing the maturing 2018 cat bond, but we hear a full-replacement would be desirable for the insurer, if market conditions allow.
The $300 million or more of Class A notes would attach at $2.2 billion of losses and exhaust coverage at $2.9 billion, giving them an initial attachment probability of 1.348%, and initial expected loss of 1.127%.
We’re told the notes are being offered to cat bond investors with price guidance in a range from 3.75% to 4.25%.
Compared to the 2018 cat bond from Travelers, that reflects a reasonable increase in rates for this reinsurance coverage.
Travelers Long Point Re III 2018 cat bond had an initial expected loss of 1.214% and priced down to provide a coupon of just 2.75%, so paid investors a multiple-at-market when launched of roughly 2.3 times the EL.
At the mid-point of guidance, so a 4% coupon, this new cat bond from Travelers would pay investors a multiple-at-market of almost 3.6 times the EL, a roughly 56% increase in multiple paid.
Given the reinsurance and cat bond market firming seen since the 2018 issuance, this seems a realistic price guide to launch Travelers new catastrophe bond at and it will be interesting to see how this executes in the market right now, especially with spread widening having been evident of late, but also considering how large and respected Travelers is as a ceding company and sponsor.
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