Unipol set to secure €100m Azzurro Re II cat bond within price guidance

Italian primary insurance company UnipolSai Assicurazioni S.p.A. looks set to secure its latest catastrophe bond backed source of reinsurance coverage within the initial price guidance and with the European earthquake catastrophe bond Azzurro Re II DAC (Series 2020-1) still on target at EUR 100 million.

Many cat bonds issued in recent weeks have priced towards the upper-end of their initial coupon guidance or above it, as reinsurance and retrocession rate firming combined with cat bond investors demand for higher returns.

But some issuances that can be considered diversifying by investors have continued to price within their initial guidance range, with UniPolSai’s latest Italy focused earthquake cat bond the latest to look set to achieve that.

UnipolSai returned to the catastrophe bond market for what will be its third issuance around a fortnight ago, seeking to replicate the coverage of its first cat bond deal, with an Azzurro Re II DAC transaction that seeks European earthquake risk reinsurance protection for the insurers Italian portfolio.

We’re told the issuance is still targeting a EUR 100 million offering of notes, which will be sold to investors to collateralise underlying earthquake reinsurance agreements for sponsor UnipolSai.

While the cat bond had room to upsize, given the coverage will span across a EUR 150 million layer of UnipolSai’s reinsurance tower, attaching at EUR 200 million of losses, at this stage we’re told it hasn’t been.

The reinsurance protection from this cat bond will be on an indemnity trigger and per-occurrence basis, covering earthquakes impacting Italy and neighbouring countries, but with the covered subject business all being within Italy.

The EUR 100 million of Series 2020-1 Class A notes to be issued by Azzurro Re II have an initial expected loss of 1.84% and were at first offered to cat bond investors with initial coupon guidance in a range from 4.25% to 4.75%.

We’re told that the guidance has been fixed at the mid-point of the launch range, with the notes now being marketed offering cat bond investors a coupon of 4.5%.

That’s where the deal is expected to remain, we’re told, although final pricing is expected later today (Monday 6th July) so it could still have room to grow.

As a diversifying peril, this shows that European earthquake risk remains attractive to investors in catastrophe bond form and that European reinsurance rates are, as yet, not perhaps hardening as has been seen in recent Florida and U.S. renewals.

We’ll update you as the Azzurro Re II DAC (Series 2020-1) catastrophe bond comes to market. You can read details on almost 700 cat bond and related insurance-linked securities (ILS) transactions in our extensive Deal Directory.

Update: At pricing this transaction remained EUR 100 million in size and the coupon was fixed at this mid-point of initial guidance, at 4.5%.