Zenkyoren secures $700m cat bond at lowest end of pricing


Zenkyoren has now secured $700 million of collateralized Japanese earthquake reinsurance cover from its latest cat bond, while the pricing for the two series of Nakama Re Ltd. (Series 2018-1) notes has now been fixed at the lowest end of the marketed range.

Giant Japanese reinsurance buyer Zenkyoren, or the Japanese National Mutual Insurance Federation of Agricultural Cooperatives as it is known, is set to benefit from the lowest priced catastrophe bond coverage in its history, as this latest Nakama Re 2018-1 cat bond has priced its tranches of risk at levels below its previous deals, despite the expected losses being incredibly similar.

The Nakama Re 2018-1 cat bond was launched to ILS investors with a targeted size of $250 million, but investor demand quickly helped the deal upsize, with the final size at pricing set at $700 million.

This will provide Zenkyoren with a $700 million source of multi-year and three-year aggregate reinsurance coverage, adding to the already $1.675 billion of outstanding cat bond backed reinsurance protection the sponsor benefits from.

Zenkyoren’s $300 million Nakama Re 2014-1 cat bond is scheduled to mature within the next month, so the replacement 2018 deal will actually take Zenkyoren’s outstanding cat bond coverage to over $2 billion when this new deal completes in the coming weeks.

But more impressive than the size of its latest catastrophe bond, is the pricing that Zenkyoren’s deal has achieved.

Given the ILS market has just faced its largest catastrophe losses in its history, Zenkyoren’s latest cat bond has been priced lower than its nearest equivalent, the Nakama Re 2016 cat bond that was issued in September 2016.

In the 2018 deal, the $500 million tranche of Class 1 notes, which have an initial expected loss of 0.48%, have now been priced with a 2% coupon, we understand. While the $200 million tranche of Class 2 notes, with an initial expected loss of 1.44%, have now priced with a coupon of 3%.

Compare that to the 2016 cat bond, when the Class 1 notes priced at 2.2%, while the 2016 Class 2 notes priced at 3.25%, while both with EL’s that were within points of this 2018 transaction.

So that’s a roughly 9% decrease in pricing for reinsurance covering the layer of risk securitised in the Class 1 tranche of notes and a roughly 8% price reduction for the Class 2 tranche layer of risk.

Of course the appetite for diversification of ILS and cat bond investors, as well as the increased interest in investing in catastrophe risks, will have helped to enhance demand for the new Nakama Re 2018 cat bond and as a result driven the pricing down.

But it is yet another deal that demonstrates that the capital markets appetite for risk in cat bond form continues and offers potential cat bond sponsors an opportunity to capitalise on this and secure very efficient reinsurance or retrocession, especially for the remote layers of their programs.

The Nakama Re Ltd. (Series 2018-1) catastrophe bond issuance is scheduled for completion on the 1st March, we understand. You can read about this and every other cat bond transaction in the Artemis Deal Directory.

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