U.S. property & casualty insurance giant Travelers is returning to the capital markets with a new $300 million Long Point Re III Ltd. (Series 2018-1) multi-peril catastrophe bond transaction, the insurers first in three years and a transaction that will renew, replace and extend the reinsurance coverage from its maturing 2015 cat bond deal.
Travelers first used cat bonds as a component of its reinsurance program back in 2007 and followed that initial deal with three others that all covered U.S. hurricane risks. The insurer then returns in 2015 with its first multi-peril cat bond, a $300 million Long Point Re III 2015-1 which matures later this month.
This 2018 cat bond is therefore a replacement and renewal of the 2015 deal, but will also extend the coverage as well, with this 2018 cat bond seeking a four-year source of fully-collateralized reinsurance protection, adding a year to the capital markets provides to Travelers and subsidiaries.
Travelers special purpose insurer Long Point Re III Ltd. will look to issue a single Series 2018-1 Class A tranche of notes, we understand, with the current target being for a $300 million issuance, which would fully replace the maturing 2015 cat bond coverage.
The $300 million of Long Point Re III 2018-1 Class A notes will be sold to investors to collateralize multi-peril reinsurance agreements between the SPI and Travelers 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.
Travelers will benefit from a collateralized source of reinsurance protection against certain losses caused by U.S. tropical cyclone, earthquake, severe thunderstorm and winter storm perils, across a covered area that is the usual northeastern U.S. states, we’re told.
We understand the covered area to be the same as its previous Long Point Re III cat bond, so protecting Travelers against losses in Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Vermont.
The Long Point Re III 2018-1 Class A notes will provide their reinsurance protection on a per-occurrence basis across the four-year term, with any payouts decided using an indemnity trigger approach.
Sources said the targeted $300 million or greater of cat bond notes to be issued by Long Point Re III in this 2018 deal will have an initial attachment probability of 1.392%, an initial expected loss of 1.214% and are being marketed to investors with coupon guidance in a range from 3% to 3.5%.
Given this is a slightly riskier cat bond, attaching at $1.9 billion of losses to Travelers and covering a layer up to $2.4 billion, the pricing is keen. The insurers 2015 cat bond attached at $2 billion initially, with an initial expected loss that was slightly lower than this new deal and priced at 3.75%.
So that reflects the tightening of catastrophe bond spreads over the last three years, making Travelers renewal of this layer of capital markets backed reinsurance an efficiency addition to the firms program.
We understand that this deal is slated for completion later this month and you can read all about Travelers new Long Point Re III Ltd. (Series 2018-1) multi-peril catastrophe bond and every other transaction in the Artemis Deal Directory.