Unipol sponsoring new €100m Azzurro Re II European quake cat bond

UnipolSai Assicurazioni S.p.A., the Italian primary insurance company, has returned to the catastrophe bond market to sponsor a new European earthquake catastrophe bond, with an Azzurro Re II DAC (Series 2020-1) transaction that targets at least EUR 100 million of reinsurance protection against quake losses for the insurers’ Italian portfolio.

This is UnipolSai’s third visit to the catastrophe bond market in search of fully collateralised, capital market investor-backed reinsurance.

Its first was in 2015 when UnipolSai sponsored the first first securitisation of earthquake risks in continental Europe on an indemnity basis, with a EUR 200 million Azzurro Re I Limited deal. That transaction matured last year and wasn’t renewed.

UnipolSai then returned in 2019 with the fated Atmos Re DAC cat bond deal, that secured the insurer EUR 45 million of reinsurance protection against a range of atmospheric and weather perils but was triggered later that year by severe weather events and ultimately suffered a total loss.

So it’s encouraging to learn from our sources that UnipolSai has returned and is looking 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.

Azzurro Re II DAC has been established in Ireland to issue a single tranche of catastrophe bond notes that will be sold to investors and the proceeds used to collateralise a reinsurance agreement between the issuing vehicle and UnipolSai.

For launch, the issuance is targeting a EUR 100 million offering, but we’re told there is room for the cat bond to upsize, should UnipolSai elect to increase it.

The reinsurance protection the cat bond provides 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.

This is the same type of reinsurance protection that UnipolSai’s 2015 Azzuro Re I cat bond provided it. We’re told the term of coverage will be across roughly three and a half years, to the end of 2023.

The currently EUR 100 million of Series 2020-1 Class A notes to be issued by Azzurro Re II will cover losses across a EUR 150 million layer of UnipolSai’s reinsurance tower, attaching at EUR 200 million of losses, we understand.

The notes will have an initial expected loss of 1.84% and are being offered to cat bond investors with coupon guidance in a range from 4.25% to 4.75%, sources said.

This new Azzurro Re II cat bond from UnipolSai sits much lower down than the insurers 2015 Azzurro earthquake cat bond deal. That transaction attached at EUR 500 million of losses and had an expected loss of just 0.31%, making this Azzurro Re II 2020 cat bond a much riskier proposition.

As a diversifying peril, which European earthquake risk is as it’s not a common feature of the catastrophe bond market, it will be interesting to see what investor appetite is like for this new offering.

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.