The sixth transaction in the Acorn Re parametric earthquake catastrophe bond series from global reinsurance firm Hannover Re has now been finalised so that this Acorn Re Ltd. (Series 2025-1) transaction will provide $240 million of protection, while the spread paid to noteholders will be below the initial price guidance.
As we explained in our first article on this new catastrophe bond earlier month, this Acorn Re 2025-1 deal was initially launched with a target size of $200 million.
As we said at the time, market conditions remain conducive to both the upsizing and pricing down of new new catastrophe bond issuances, thanks to continued high-levels of investor demand.
Then, in our first update on the Acorn Re 2025-1 cat bond, we reported that the size target had been raised to between $225 million and $275 million, while the price target had been lowered as well.
Now, we’ve learned that the size of this issuance has been finalised to provide $240 million of parametric US west coast earthquake reinsurance protection, so 20% up on the initial amount of notes offered, while the pricing will settle below the initial spread guidance, but within the revised range.
This sixth in the series of U.S. west-coast focused parametric earthquake catastrophe bonds, will provide reinsurance coverage to the Kaiser Permanente workers compensation captive, covering its insured exposure to earthquake risks across that region (largely centred on California), as well as to other Hannover Re reinsureds, that have exposure within the parametric earthquake boxes should a major quake event occur.
Given the upsizing, we now know that the Acorn Re 2025-1 Class A cat bond notes will provide the covered parties, Kaiser Permanente via the Oak Tree Assurance Ltd. workers compensation captive, and the other reinsureds of Hannover Re, with a $240 million multi-year source of per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region.
The now confirmed to be $240 million tranche of Acorn Re 2025-1 Class A notes come with an initial expected loss of 0.96%.
These notes were first offered to cat bond investors with price guidance for a spread in a range from 2.5% to 2.9%, but that was reduced to a lower revised range of between 2% and 2.5% at the first update.
We are now told that the Class A notes have been priced to pay investors a spread of 2.35%, so below the initial but within the revised guidance ranges.
For some context, the 2021 Acorn Re parametric cat bond deal had an expected loss of 0.89% and priced at 2.5% (a multiple of 2.8 times EL), while the 2023 Acorn Re issuance had an initial expected loss of 0.91% and priced for a spread of 4.35% (a multiple of 4.78 times EL).
Last year’s Acorn Re 2024-1 cat bond notes came with an initial expected loss of 0.88% and priced to pay investors a spread of 3.1% (a multiple of 3.52 times EL).
The earlier 2018 and 2015 Acorn Re parametric cat bonds paid multiples-at-market of 3.4 times and 4.3 times expected loss respectively.
So, with the Acorn Re 2025-1 cat bond notes having an initial expected loss of 0.96% and pricing to pay a spread of 2.35%, their multiple-at-market is 2.45 times the base EL.
As a result, this 2025-1 parametric Acorn Re catastrophe bond comes with the lowest spread multiple-at-market of expected loss that we’ve seen from this series of parametric cat bond deals seen so far.
This is indicative of the fact cat bond pricing and cat bond market risk spreads have reduced back to 2022 or in some cases slightly earlier levels and serves to demonstrate the opportunity for sponsors to lock-in multi-year fully-collateralized reinsurance at attractive costs while investor demand and capital levels remain high.
However, it’s also indicative of improvements in the modelling and the parametric box structure used for the trigger of these catastrophe bonds, which sources say has become more sophisticated over time and is also in part reflected in their pricing.
You read all about this new Acorn Re Ltd. (Series 2025-1) transaction and every other catastrophe bond in the Artemis Deal Directory.
