The Texas Windstorm Insurance Association’s (TWIA) latest catastrophe bond issuance is set to become its biggest by a long way, as the Alamo Re Ltd. (Series 2015-1) issuance has grown in size to $700m, while the pricing has been set near the upper end of guidance.
In yet another sign of the continued investor demand for access to reinsurance returns via insurance-linked securities (ILS) such as catastrophe bonds, sources said that the Alamo Re 2015-1 cat bond has upsized by 60%, from the $450m it launched at to now offer $700m of notes to investors.
The deal is split into two tranches of notes. At launch, the Class A notes, which are the riskier of the two, was sized at $200m. This tranche has upsized by 50% to $300m.
Meanwhile the less risky Class B tranche of notes, which launched at an indicated size of $250m, has upsized by 60% to now offer $400m of notes to ILS investors.
In terms of pricing, the Class A tranche has launched with price guidance of 5.4% to 5.9%, while Class B had guidance of 4.25% to 4.75%.
The Class A notes pricing looks likely to settle at a new indication of the upper end of guidance at 5.9%. With an expected loss of 2.46% base case (2.68% sensitivity case) that suggests a multiple of 2.4x at the base case, 2.2x sensitivity case.
The Class B tranche of notes latest pricing indication is at just below the top end of guidance, at 4.6%. With an expected loss of 1.42% at the base case (1.58% sensitivity case), the multiple looks likely to be 3.2x at the base case, 2.9x sensitivity case.
The fact that it is the lower risk, lower yielding tranche that upsized the most perhaps suggests that investors are looking for the higher multiple, of coupon to expected loss which made the Class B tranche more attractive.
So with its second visit to the catastrophe bond market TWIA looks set to significantly grow the amount of fully-collateralized Texas named storm cover it receives from the capital markets. The insurer already has a $400m Alamo Re Ltd. (Series 2014-1) in force, so with the addition of the 2015 cat bond the cover it receives from the ILS market will grow to $1.1 billion.
That will put TWIA into the top sponsors in the cat bond and ILS market, fifth place in our ILS sponsors leaderboard. This further demonstrates the attractive coverage and pricing terms that insurers of last resort can achieve in the capital markets through cat bonds.
TWIA’s Alamo Re Ltd. (Series 2015-1) is set to become the largest catastrophe bond transaction issued in 2015 so far. The deal completes in mid-May. You can read all about this and every other cat bond transaction in the Artemis Deal Directory.