Two tranches of notes designed to provide aggregate reinsurance protection have been pulled from the latest catastrophe bond issuance for Japanese insurance carriers owned by MS&AD Insurance Group Holdings, as the Tomoni Re Pte Ltd. transaction now targets up to $245 million of occurrence protection only.
The Tomoni Re 2022 catastrophe bond launched earlier in March and was seeking a multi-year source of collateralized Japanese typhoon and flood reinsurance protection for the ultimate beneficiaries, which are MS&AD insurer subsidiaries Mitsui Sumitomo Insurance Co. Ltd. and Aioi Nissay Dowa Insurance Co., Ltd.
At its launch to the cat bond investment community, the first issuance from Singapored based special purpose reinsurance vehicle Tomoni Re Pte. Ltd. was structured in two series, one to provide occurrence reinsurance, the other aggregate, and each featuring two tranches of notes.
Now, sources have told Artemis that only the Series 2022-1 tranches of per-occurrence notes are to be issued, as the Series 2022-2 tranches, one of which was an annual aggregate layer of cover and the other a two-year aggregate, have both been dropped and now won’t be offered.
We suspect this is a case of a sponsor looking to see what the catastrophe bond market may be able to offer, in competition with the traditional marketplace, given the costs and challenges in securing aggregate reinsurance protection at this time.
It seems the cat bond markets pricing indications, or terms, were not conducive to pursuing the issuance of the two aggregate tranches of notes, so now Tomoni Re Pte. Ltd. will only issue the two Series 2022-1 tranches of per-occurrence notes, we’re told.
The targeted size across the two Series 2022-1 tranches of notes is now between $190 million and $245 million and this will provide the MS&AD insurers with cover against certain losses caused by typhoons and floods in Japan, on an indemnity trigger basis and across a roughly four-year term to early April 2026.
The remaining tranches will provide coverage to the two ceding insurers, one tranche for each company.
The Series 2022-1 Class A-1 tranche of notes, that will provide Mitsui Sumitomo with per-occurrence reinsurance protection, have an initial expected loss of 0.38% and were first offered to cat bond investors with price guidance in a range from 1.9% to 2%.
Now, this Class A-1 tranche of notes is targeted at $100 million to $125 million in size, with price guidance slightly tighter at 1.95% to 2%.
The Series 2022-1 Class B-1 tranche of notes, that will provide Aioi Nissay Dowa with per-occurrence protection, have an initial expected loss of 1.37% and were first offered to investors with coupon guidance of 2.5% to 2.75%.
Now, the Class B-1 notes are being targeted at $90 million to $120 million in size, with price guidance again a little tighter at 2.65% to 2.75%.
Both tranches have seen their price guidance tighten towards the upper-ends, once again demonstrating the cat bond investment markets desire for higher returns.
We suspect pricing was the reason for the aggregate layers being dropped, as they were originally marketed at quite tight spreads.