Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

XL (Catlin) sponsoring $300m Galileo Re 2016-1 multi-peril cat bond


The first catastrophe bond to be launched to the ILS investor market in 2016 is a $300 million or greater Galileo Re Ltd. (Series 2016-1) international multi-peril issuance which is being sponsored by XL Insurance (Bermuda) Ltd.

Galileo Re is, of course, the cat bond issuing vehicle that was used twice by Catlin, the insurance and reinsurance group which entered into an M&A deal with XL Group. Now XL Group is using the same vehicle to acquire broad property catastrophe reinsurance and retrocession from the capital markets.

Catlin used the Bermuda domiciled special purpose insurance vehicle to sponsor a $300m Galileo Re Ltd. (Series 2013-1) transaction and more recently last year another $300m Galileo Re Ltd. (Series 2015-1) catastrophe bond.

So it’s encouraging to hear from sources that XL Group intends to continue to access the ILS market for a source of reinsurance and retrocession through Galileo Re. While sponsored by XL Insurance (Bermuda) Ltd., the Galileo Re 2016-1 cat bond will cover losses from a range of XL Group entities, from insurers to reinsurers and Lloyd’s syndicates, whether XL or Catlin branded subsidiaries, so effectively losses suffered by the group.

We understand that the Galileo Re 2016-1 cat bond will seek cover for XL for the same range of perils as the previous two cat bonds, namely U.S. named storms, U.S. earthquake, Canada earthquake, European windstorm.

This 2016-1 issuance from Galileo Re is split into three tranches of notes, we understand, with each covering a different layer of the XL reinsurance and retro program. All three tranches will provide protection for each of the covered perils on an annual aggregate and industry loss trigger basis. The transaction will run for three annual risk periods to the end of 2018.

U.S. named storm, U.S. earthquake and Canadian earthquake coverage will be triggered based on a PCS weighted industry loss index, while European windstorm protection will use a PERILS AG weighted industry loss index. Coverage for all perils is for the typical states and countries where exposure is highest to each peril, we understand.

The three tranches of notes sit on top of each other, to ultimately provide coverage across a layer that attaches at $200 million of losses up to an exhaustion of coverage at $800 million of losses. All three tranches feature a $40 million per event deductible, we’re told.

A $100 million Class A tranche of notes is the riskiest, attaching at $200 million and exhausting at $400 million. A $100 million Class B tranche then attaches at $400 million and runs up to exhaustion at $600 million. Finally, A $100 million Class C tranche attaches at $600 million and exhausts at $800 million.

Of course that structure would give XL the opportunity to upsize the transaction significantly, if it found market conditions conducive and wanted to, to cover the entire $600 million layer of its program through the capital markets with this cat bond.

Given how low the Class A tranche attaches it has a high probability of attachment, initially at 12.74%, with an expected loss of 8.66% at the base case or 9.52% at the WSST sensitivity case. This tranche is being marketed with price guidance of 13.75% to 14.25% we’re told.

The Class B tranche has an initial attachment probability of 5.9%, with an expected loss of 4.57% base or 4.96% sensitivity. This tranche will offer a coupon in the range of 9.25% to 9.75%.

Finally the Class C notes have an initial attachment probability of 3.55%, so the least risky, with an expected loss of 2.85% base or 3.09% sensitivity. This tranche is marketed with pricing of 7.25% to 7.75%.

In terms of multiples, at the middle of these guide ranges, the Class A tranche would provide 1.62 times the expected loss at the base case, or 1.47 times at the sensitivity case. That’s a low multiple and it will be interesting to see where pricing goes, as it will provide a good indicator of investor risk appetite for higher-yielding cat bond notes.

Class B would offer a base case multiple of 2.08 times the expected loss, or 1.92 times the sensitivity case. Class C would offer a base multiple of 2.54 times the expected loss, or 2.43 times the sensitivity EL.

As with other recent catastrophe bonds which have offered a higher yielding tranche of notes, the multiples are clearly lower as investor demand would be expected to be higher for such an opportunity. Hence the multiples increase as the yield comes down across the three marketed tranches.

We understand that Guy Carpenter subsidiary GC Securities is acting as sole structuring agent and bookrunner for this transaction, while AIR Worldwide is providing the risk modelling expertise.

This catastrophe bond will provide a good test of ILS investor appetite for a range of layers of risk at the start of 2016. It will also be interesting to see whether XL elects to upsize the transaction, if investor appetite allows, as it would be a good sign of the newly joined XL Catlin’s appetite to leverage the capital markets for reinsurance and retrocession.

We’ll keep you updated as the $300 million Galileo Re Ltd. (Series 2016-1) catastrophe bond from XL Group comes to market. You can read all about this deal and every other catastrophe bond in the Artemis Deal Directory.


Artemis’ Q4 2015 Catastrophe Bond & ILS Market Report – Outright market growth continues

Q4 2015 Catastrophe Bond & ILS Market ReportWe’ve now published our Q4 2015 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the fourth-quarter of 2015, looking at the $1.525 billion of new risk capital issued and the composition of the cat bond & ILS transactions completed during Q4 2015. The report also includes a review of the full year 2015 issuance and commentary from co-editor GC Securities.

Download your copy here.

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