XL Catlin’s trip to the capital markets with twin Galilei Re Ltd. (Series 2016-1) and Galilei Re Ltd. (Series 2017-1) catastrophe bond issues will result in the largest single cat bond of 2016 and a brisk start to 2017 for the ILS market, as the company targets an upsized $1.275 billion of capacity from them.
When the two Galilei Re Ltd. catastrophe bonds were launched to the market earlier this month, XL Catlin and subsidiary companies were targeting $1 billion of reinsurance and retrocession from the pair of transactions, with each having a preliminary size of $500 million.
Artemis understands that the pair are set to upsize by 28% and the new target for the two cat bonds now set at $1.275 billion combined, with the Galilei Re 2016-1 deal now likely to be the largest catastrophe bond of 2016, growing by 50% to $750 million, while the Galilei Re 2017-1 deal will see a slight upsizing to $525 million.
The two transactions will provide XL Catlin subsidiaries with now $1.275 billion of collateralised retrocessional reinsurance protection for losses from U.S. named storms, U.S. earthquakes, European windstorms, Australian tropical cyclones and Australian earthquakes.
Both deals remain structured in five tranches of notes each, with the now $750m of three-year coverage Galilei Re 2016-1 still set for issuance this year and the $525m four-year coverage Galilei Re 2017-1 scheduled to be issued in the first half of January.
The transactions are identical aside from the issuance date, when the first risk period will start and the fact one offers three-years of reinsurance protection, while the other offers four.
Interestingly, the pricing has been fixed for all tranches at the same levels for the corresponding tranches of the two Galilei cat bond deals and investors do not seem to have required any additional coupon for taking on the extra year’s duration with the 2017-1 deal.
Instead investor appetite appears to be reflected in the size of the tranches, with the three-year notes all growing to larger than their four-year twins.
The Series 2016-1 Class A-1 and Series 2017-1 Class A-2 tranches of notes both launched at $62.5m in size, but the 2016-1 tranche has grown to $75m while the 2017-1 tranche has shrunk to $50m. Both tranches are launched with price guidance of 12.5% to 13.25%, and this has now been fixed at the upper end of guidance at 13.25%.
The Series 2016-1 Class B-1 and Series 2017-1 Class B-2 tranches of notes also launched at $62.5m each. The 2016-1 tranche has more than doubled to $125m and the 2017-1 has shrunk to $50m Both tranches are launched with price guidance of 7.75% to 8.5%, and this has been fixed at 8%, so towards the lower end of the range.
The Series 2016-1 Class C-1 and Series 2017-1 Class C-2 tranches of notes launched at $125m in size each. The 2016-1 tranche has upsized to $175m while the 2017-1 tranche has also grown to $150m. Both tranches launched with price guidance of 5.75% to 6.5% and this has been fixed towards the upper end at 6.25%.
The Series 2016-1 Class D-1 and Series 2017-1 Class D-2 tranches of notes also launched at $125m each. The 2016-1 tranche has upsized to $175m, while the 2017-1 has upsized to $150m. Both tranches were launched with price guidance of 4.5% to 5.25% and this has been fixed at the top-end of guidance at 5.25%.
Finally, the Series 2016-1 Class E-1 and Series 2017-1 Class E-2 tranches of notes which launched at $125m each. Here, the 2016-1 tranche has increased in size to become the largest of the 2016 cat bond at $200m, while the 2017-1 tranche remains the same at $125m. Both tranches were offered with price guidance of 3.75% to 4.5% and this is set to settle at the upper-end of guidance at 4.5% we understand.
So in terms of size the Galilei Re 2016-1 cat bond will be $750 million in size, if there are no further adjustments, and the 2017-1 cat bond will be $525 million in size. Both cat bond deals are expected to price later today, after which their sizes, coupons and allocations to investors will be fixed.
As a result it seems there are unlikely to be many changes to the transaction at this stage, with these final tranche sizes and pricing likely based on firm orders from the ILS fund manager and investor community. We will update you should we hear of any further changes.
With the Galilei Re 2016-1 cat bond being the largest of the year it will help to take fourth-quarter issuance above the $2 billion point once again and lift total annual issuance for 2016 above the $7 billion mark once again.