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Zenkyoren’s Nakama Re 2015-1 cat bond hits $300m, pricing hardens


The latest catastrophe bond from repeat sponsor Zenkyoren (Nakama Re Ltd. (Series 2015-1)), the Japanese National Mutual Insurance Federation of Agricultural Cooperatives, has grown by 50% to $300 million in size but pricing looks set to harden and settle at the upper end of initial guidance.

When Zenkyoren’s latest Nakama Re cat bond launched, the Japanese mutual insurance group was seeking at least $200 million of indemnity based reinsurance protection from the capital markets for Japanese earthquake risks across a five-year term.

The deal featured two tranches, both sized at $100 million at launch. Both would provide five years of Japanese earthquake reinsurance protection to Zenkyoren, with a Class 1 tranche providing per-occurrence cover and a Class 2 tranche providing its cover on a three-year aggregate basis, across each of three overlapping risk periods, over a five-year term in total.

The Class 1 tranche remains at $100 million in size, sources told Artemis, but the pricing has moved to the top end of initial guidance at the same time. This tranche launched with coupon guidance of 2.75% to 2.875%. It is now being offered at the top-end at 2.875%.

Meanwhile the Nakama Re 2015-1 Class 2 tranche of notes has doubled in size, to $200 million. The pricing on these notes has also hardened and moved to the top of the initial range, which was 2.875% to 3.25%, to now offer investors a coupon at 3.25%.

The hardening of the pricing makes the multiples more attractive to the ILS investor base and this appears to be another example of investors establishing their minimum return requirements for taking on risk at these levels.

As ever, it’s encouraging to see that ILS investors and ILS fund managers will not continue to support ever-decreasing multiples of return in the catastrophe bond market, as it reflects discipline in pricing and capital deployment.

The Class 1 tranche, with pricing likely at a coupon of 2.875%, will now provide a multiple of 2.48 times the initial expected loss of 1.16% to investors. The Class 2 tranche, if it prices at the 3.25% coupon, would provide investors a multiple of 3.78 times the annualised expected loss of 0.86%. Investors are clearly being compensated for the multi-year aggregate structure of this tranche, which could go some way to explaining the upsizing.

The pricing for this now $300 million Nakama Re 2015-1 cat bond is set for early next week, we understand, while settlement is scheduled for the 29th December.

We’ll keep you updated as Zenkyoren’s Nakama Re Ltd. (Series 2015-1) catastrophe bond moves towards completion.

You can read about this and every other catastrophe bond sponsored by Zenkyoren in the Artemis Deal Directory.

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