The latest catastrophe bond issuance for Japanese insurance carriers owned by MS&AD Insurance Group Holdings has now been priced, with the Tomoni Re Pte Ltd. Series 2022-1 transaction securing the company $220 million of per-occurrence reinsurance protection at the top-end of price indications.
After the aggregate layers of coverage that were being sought from this Tomoni Re cat bond were pulled from the issuance, our sources have now said the notes have been priced, with MS&AD’s insurers almost securing their upper target for reinsurance, but at the cost of pricing that has now been finalised at the top-end of guidance.
The Tomoni Re 2022 catastrophe bond was launched to investors earlier this month, seeking a multi-year source of collateralized Japanese typhoon and flood reinsurance protection for the ultimate beneficiaries, which are the MS&AD-owned insurer subsidiaries Mitsui Sumitomo Insurance Co. Ltd. and Aioi Nissay Dowa Insurance Co., Ltd.
Originally the Tomoni Re Pte. Ltd. cat bond was structured in two series, one to provide occurrence reinsurance, the other aggregate, and each featuring two tranches of notes.
But, as we explained earlier, our sources said only the Series 2022-1 tranches of per-occurrence notes would 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, were both dropped from the issuance.
We’re told the MS&AD insurers are likely to look to the traditional reinsurance market for some type of aggregate reinsurance protection, while persisting with this cat bond for per-occurrence coverage.
With the Tomoni Re Pte. Ltd. Singapore based special purpose reinsurance vehicle set to only issue the two Series 2022-1 tranches of per-occurrence notes, , the targeted size of the issuance was adjusted to between $190 million and $245 million.
This cat bond is designed to 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 per-occurrence coverage to the two ceding insurers, one tranche for each company.
We’re now told that the size of this issuance has been finalised at $220 million.
The Series 2022-1 Class A-1 tranche of notes, that will provide Mitsui Sumitomo with per-occurrence reinsurance protection, and have an initial expected loss of 0.38%, were first offered to cat bond investors with price guidance in a range from 1.9% to 2%.
The Class A-1 tranche of notes was then targeted at between $100 million to $125 million in size, with revised price guidance slightly tighter at 1.95% to 2%.
Now, we’re told the Class A-1 tranche of notes will provide Mitsui Sumitomo with $100 million of per-occurrence Japanese typhoon and flood reinsurance, with pricing now fixed at the upper-end of 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%.
Subsequently, the target for the Class B-1 notes was set at $90 million to $120 million in size, while the price guidance narrowed towards the upper-end at 2.65% to 2.75%.
We’re now told by sources that the Class B-1 notes will provide Aioi Nissay Dowa with $120 million of per-occurrence reinsurance protection against Japanese typhoons and floods, while the pricing for the notes has now been finalised at the top-end of guidance, at 2.75%.
While the aggregate coverage seemingly proved a stretch too far for the catastrophe bond market, at least at the prices offered, it’s encouraging that MS&AD’s two leading insurers will continue to benefit from important occurrence reinsurance protection from the capital markets thanks to this new deal.