Zenkyoren’s Nakama Re 2014-2 cat bond hits $375m, price moves to mid-point


The Japanese National Mutual Insurance Federation of Agricultural Cooperatives, more typically known as Zenkyoren, has seen its latest catastrophe bond deal grow by 88% while being marketed, as Nakama Re Ltd. (Series 2014-2) upsized to $375m.

At the same time as growing from the $200m the deal was targeting, up to the $375m that we now understand the cat bond to be sized at, Zenkyoren’s latest cat bond has also seen the proposed pricing shift towards the mid-point of initial guidance.

Zenkyoren, the largest single buyer of catastrophe reinsurance protection globally, returned to the catastrophe bond market a fortnight ago with its latest and third issuance using the Nakama Re special purpose insurance vehicle. The proposed deal was targeting $200m of Japanese earthquake protection for the insurer.

Nakama Re Ltd. is issuing two tranches of Series 2014-2 notes to fully-collateralize two underlying reinsurance contracts with Zenkyoren. Both of the tranches provide reinsurance protection on an ultimate net loss, or indemnity, triggered basis and the reinsurance protection is for losses from earthquake shaking, tidal wave, flood, fire following and also sprinkler damage.

Both of the tranches of notes launched at $100m in size each, targeting at least $200m from the cat bond in total. The Class 1 tranche of notes provide earthquake reinsurance protection in Japan on a per-occurrence basis across a four-year period, while the Class 2 tranche will provide protection on a three-year aggregate basis, across each of three overlapping risk periods over five full years in total. More on this interesting aggregate structure can be found in our Deal Directory entry on Nakama Re 2014-2.

We understand that after two weeks of marketing to the ILS investor community, both tranches have increased in size. The Class 1 per-occurrence tranche of notes has increased in size by 75% to $175m, while the Class 2 aggregate tranche of notes has doubled in size to $200m, giving the cat bond a total expected size of $375m.

At the same time as upsizing the pricing has moved while the deal was marketed to investors, with both tranches looking likely to price at the mid-point of the initial price guidance.

The per-occurrence Class 1 notes launched with coupon guidance of 2% to 2.25%, which we understand has now moved to the mid-point at 2.125%. Meanwhile, the three-year aggregate Class 2 notes which launched with guidance of 2.75% to 3%, look likely to also price at the mid-point at 2.875%.

So, as we noted in our article when this cat bond launched, both tranches of notes will settle with multiples well above 3 times the expected losses. Despite the low coupons, these are remote risk cat bonds which would require very large Japanese earthquake losses to trigger them.

We understand that final pricing for these notes will be later today, but there is unlikely to be any further change in pricing or size, we will update you if there is.

With Nakama Re 2014-2 having upsized by an additional $175m this now takes our latest forecast for the full-year 2014 catastrophe bond issuance to reach $8.72 billion, a very healthy year for the market. With all of the cat bonds currently yet to complete, that we’re aware of, now seeming to be settled in terms of size, unless another late transaction emerges (which we’ll let you know about just as soon as we do) that is looking like our year-end total.

You can read all about the Nakama Re Ltd. (Series 2014-2) Japanese earthquake catastrophe bond from Zenkyoren and every other cat bond issued this year and going back as far as 1996 in the Artemis Deal Directory.

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