The Texas Windstorm Insurance Association’s (TWIA) first catastrophe bond, Alamo Re Ltd. (Series 2014-1), looks set to hit its $400m target as the deal upsizes, while at the same time the pricing guidance has been lowered Artemis understands.
TWIA launched its first catastrophe bond deal at the start of June, after its board approved the sponsorship of a cat bond for the first time, after three years of trying. Market conditions in reinsurance and cat bonds are so conducive to buyers like TWIA right now that it could achieve a much greater degree of protection for a lower cost this year.
The Alamo Re cat bond launched at $300m in size, despite TWIA’s stated target being to secure $400m from the cat bond. TWIA is using German reinsurer Hannover Re as a transformer for the transaction, so TWIA enters into a reinsurance agreement with Hannover Re while it enters into a retrocession agreement with Alamo Re Ltd.
The Alamo Re 2014-1 catastrophe bond will provide three years of reinsurance protection, ultimately to TWIA, on an annual aggregate basis using an indemnity trigger, covering Texas named storms.
Artemis understands that the cat bond has been upsized to the targeted $400m, so reaching TWIA’s target for protection from the capital markets.
At the same time, the price guidance has been lowered and narrowed, we understand. The Alamo Re cat bond was launched with a coupon guidance range of 6.5% to 7%, but that has now been lowered to a range of 6.35% to 6.5%.
That suggests that the Alamo Re cat bond will close with pricing at, or below, the initial guidance, perhaps demonstrating investors demand for the Texas only risk which can provide a geographic diversifier of sorts to a cat bond portfolio.
We’re told by sources that demand for TWIA’s first catastrophe bond has been high, which should encourage TWIA to perhaps repeat the issuance in future. If the pricing is secured at a low-level, so below the budgeted range, TWIA may be able to purchase additional traditional reinsurance, so becoming even better protected than ever before.
The Alamo Re Ltd. (Series 2014-1) catastrophe bond is expected to price next week and will complete before the end of June. We will update you as it comes to market and you can read much more about the deal in the Artemis Deal Directory.