Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives and one of the world’s largest buyers of catastrophe reinsurance protection, could secure its largest catastrophe bond ever with its latest issuance, as the top-end target for the Nakama Re Pte. Ltd. (Series 2021-1) cat bond has now risen to $775 million, we understand.
Zenkyoren returned to the catastrophe bond market just over a fortnight ago with a new Nakama Re cat bond through which it was targeting at least $500 million of Japanese earthquake reinsurance protection.
This new Nakama Re cat bond is the first to be sponsored by Zenkyoren that uses Singapore is its domicile of issuance, as the giant Japanese mutual insurer looks to benefit from the ILS grant scheme offer that is available there.
It’s encouraging to see another Asian sponsor looking to a local domicile though and we hope to see at least some of these stick regionally when the grant’s are no longer available.
This is the twelfth catastrophe bond directly sponsored by Zenkyoren that we have listed in our extensive Deal Directory.
To-date, the largest cat bond sponsored by Zenkyoren that we’ve covered were two $700 million issues in 2016 and 2018.
As of the latest information we’ve gleaned from sources, we understand that the target size for this Nakama Re 2021-1 cat bond has been lifted to a range of $675 million to as high as $775 million, which would be a record issue for Zenkyoren.
With a $700 million Nakama Re Ltd. (Series 2016-1) cat bond scheduled for maturity in October, this means Zenkyoren will likely replace that expiring capital markets backed reinsurance protection.
With its latest cat bond, Zenkyoren is again seeking protection on a three-year aggregate, indemnity triggered basis, to cover it against Japanese earthquake risks.
The coverage will run across almost five years to October 2026, with three annual aggregate risk periods, each three-years in length, that overlap across the term.
At launch, the deal targeted an issuance of at least $400 million of Series 2021-1 Class 1 notes, with a three-year expected loss of 2.2%, or 0.73% annualised, and these were offered to cat bond investors with price guidance in a range from 1.75% to 2.2%.
Now, we’re told that this Class 1 tranche of notes targets between $500 million and $550 million, in terms of issuance size and that the pricing has been fixed at 2.05%.
The Class 2 tranche of Series 2021-1 notes were launched as a $100 million layer, with a three-year expected loss of 3.77%, or 1.26% annualised, and price guidance of 2.5% to 3%
Sources told us that this tranche of Class 2 notes is also likely to grow, with the target now $175 million to $225 million, in terms of size and pricing has now been fixed with a coupon of 2.75%.
It’s encouraging to see that both coupons look set to be finalised in the middle area of guidance, rather than at the bottom, demonstrating once again that cat bond funds and investors do have minimum return requirements they need to hit.