Versicherungskammer Bayern Versicherungsanstalt des oeffentlichen Rechts’ (VKB), the German domestic market insurance group, is back in the catastrophe bond market looking to renew coverage from its soon to mature debut deal, by sponsoring a currently €150 million King Max Re II DAC (Series 2026-1) German multi-peril transaction, we have learned.
VKB sponsored its debut cat bond in late 2023, securing an upsized €175 million of multi-peril catastrophe reinsurance protection from the King Max Re DAC 2023 issuance, which became one of only a handful of catastrophe bond transactions ever to solely have a focus on transferring German perils to the capital markets.
That cat bond sponsored in 2023 is scheduled to mature in early January 2027, hence this new offering that has come to light appears to be a renewal of the multi-peril reinsurance coverage for the sponsor.
VKB is a top-ten insurance group in Germany, having the largest public-sector insurance operation and one of the largest primary insurance franchises.
VKB Re, or Versicherungskammer Bayern Konzern-Rückversicherung Aktiengesellschaft, a subsidiary of the VKB group that plays a role as an internal reinsurer and risk pool for the group, is again the ceding entity for this second catastrophe bond for VKB.
We’re told the company has established King Max Re II DAC in Ireland for its second catastrophe bond sponsorship.
King Max Re II DAC is offering a single tranche of Series 2026-1 notes to cat bond funds and investors, with the proceeds of their sale set to be used to collateralize a reinsurance agreement between the issuer and VKB Re.
The single tranche of notes on offer are designed to provide the insurance group with a capital markets backed source of indemnity and per-occurrence triggered reinsurance protection against losses from the perils of earthquake, hailstorm, flood and windstorm in Germany, over a three year term beginning January 1st 2027, sources said.
This is the same range of perils the soon to mature 2023 cat bond provided reinsurance to VKB for, while the three-year term is the same as well.
The current offering is for €150 million of King Max Re II Series 2026-1 Class A notes and the coverage will have an attachment point at €700 million of losses and coverage would exhaust at €1 billion.
That’s a lower attachment than the maturing cat bond, which protected VKB from an attachment point at €900 million of losses.
The €150 million of King Max Re II Series 2026-1 Class A notes come with an initial attachment probability of 2.29% and expected loss of 1.68%, while they are being offered to investors with price guidance for a spread of between 3% and 3.25%, we understand.
The maturing 2023 cat bond had launched with an initial expected loss of 0.81% and priced to pay investors a risk interest spread of 5%.
As a result, this Series 2026-1 cat bond from King Max Re II DAC is more risky and comes with meaningfully lower pricing, reflecting the softened conditions we see across reinsurance markets today.
The lower attaching notes and their soft market pricing guidance shows just how much market conditions have changed in three years. It will be interesting to see where this new cat bond prices for the sponsor, as another example of how attractive market conditions are for sponsors of catastrophe bonds at this time.
You can read all about this King Max Re II DAC (Series 2026-1) catastrophe bond transaction to our Deal Directory, where you can analyse details of almost every cat bond ever issued.
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