1 month ago
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The Acorn Re Ltd. (Series 2024-1) parametric earthquake catastrophe bond issuance has now been priced and its details finalised, with the issuance successfully upsized to provide $450 million of protection, while pricing was fixed below the initial guidance that was offered, Artemis can report.
Artemis was first to report two weeks ago that a new Acorn Re cat bond was in the market.
The cat bond was again seeking parametric quake protection for Oak Tree Assurance, the workers compensation captive insurer of the Kaiser Permanente group of health plan companies, as well as providing some additional protection to other Hannover Re reinsureds, with Hannover Re fronting the capital markets for the transaction.
At its launch to investors, this cat bond issuance saw Acorn Re Ltd. looking to issue two tranches of notes, each sized at $200 million.
As we reported last week, we learned that the two tranches of notes were subsequently being offered with a range, in terms of size, from $200 million to as much as $225 million each, so giving a maximum upper size of $450 million for the Acorn Re 2024-1 catastrophe bond issuance, while at the same time the price guidance had been lowered.
Now, sources have told Artemis that the top-end target for size of the new Acorn Re 2024-1 parametric catastrophe bond has been achieved, with both tranches of notes reaching the $225 million upper target, so it will provide the beneficiaries with $450 million of parametric quake protection.
At the same time, the pricing has now been finalised as well, below the initial guidance that had been offered, but not quite at the bottom of the reduced updated range.
The notes will provide the beneficiaries of the protection, the Kaiser Permanente captive insurer and certain Hannover Re reinsureds, with a multi-year source of per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region, backed by the capital markets, with the highest exposure concentration focused on California.
Now finalised, Acorn Re Ltd. will issue a $225 million Class A tranche of Series 2024-1 notes that will provide three years of protection, as well as a $225 million Class B tranche that will provide just a single year of cover.
The only difference between the two tranches of notes is the length of coverage each provides, while they both feature the same risk metrics in terms of attachment and expected loss.
It suggests the sponsors have a desire to stagger the maturities of their parametric cat bond coverage, which is always an encouraging sign as it shows a desire to make the capital markets backed protection as flexible and useful as possible for those it is covering.
Both of the tranches of notes come with an initial attachment probability of 1.23% and an initial expected loss of 0.88%.
At launch to investors, the notes were first offered to cat bond investors with price guidance in a range from 3.5% to 4.1%.
As we reported last week, the price guidance was lowered, with an updated range of between 3% and 3.5% being offered to investors.
Now, Artemis’ sources have told us that the pricing has been finalised to pay investors a spread of 3.1%, so below the initial price guidance, but not quite at the bottom of the reduced range.
Which is at least encouraging that investors held the line on price to a degree for this diversifying peril and did not chase the price right down to the bottom.
At that level of pricing, the $450 million of Series 2024-1 parametric cat bond notes from Acorn Re Ltd. will pay investors a multiple of 3.52 times the initial expected loss.
For comparison, the 2023 Acorn Re issuance had an initial expected loss of 0.91% and priced with a spread of 4.35% for a multiple-at-market of 4.78 times EL, while the 2021 Acorn Re deal had an initial expected loss of 0.89% and priced with a spread of 2.5% for a multiple-at-market of 2.81 times the EL.
As a result, this new Acorn Re 2024-1 cat bond sits somewhere in the middle, in terms of multiple being paid. But, the market was certainly harder in June 2023 when the Acorn Re 2023 cat bond was issued.
This is now the fifth Acorn re catastrophe bond we have tracked in our Deal Directory. It is not quite the largest, but it is encouraging to see the addition of a second tranche, with a different term of coverage, as it suggests the program is increasingly core to the earthquake insurance arrangements of the workers comp captive and other beneficiaries of the protection.
You read all about this new Acorn Re Ltd. (Series 2024-1) transaction and every other catastrophe bond in the Artemis Deal Directory.
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