US primary insurer The Hanover Insurance Group, Inc. is out in the market seeking its first ever catastrophe bond, with a $100 million Commonwealth Re Ltd. (Series 2022-1) deal that targets US named storm reinsurance protection for the company.
The Hanover Insurance Group is the latest in a string of first-time cat bond sponsors in 2022, a year that has so far seen a good deal of new market entrants, as increasing numbers of re/insurers look to the capital markets for reinsurance alternatives during this hardening market period.
The Hanover has registered a new Bermuda company named Commonwealth Re Ltd. that is expected to be licenced in time as a special purpose insurer (SPI), for use as a catastrophe bond issuance vehicle.
Commonwealth Re Ltd. is aiming to issue a $100 million or greater tranche of Series 2022-1 notes, that will be sold to investors and the proceeds used to collateralize a reinsurance agreement between the vehicle and The Hanover.
The reinsurance will protect numerous of The Hanover Insurance Group’s subsidiary insurance companies against certain losses from named storms (so tropical storms and hurricanes, as well as related perils) on a per-occurrence and indemnity trigger basis over a three year period.
The covered area are the US northeast states that typically feature in a named storm cat bond focused on that part of the country, we understand.
We’re told the notes reinsurance coverage would attach at $1.3 billion of losses to The Hanover and its subsidiaries, exhausting at $1.45 billion, meaning this first Commonwealth Re cat bond could upsize to as much as $150 million if pricing and terms are conducive.
The $100 million of Series 2022-1 Class A notes come with an initial expected loss of 0.54% at the base case, we understand, and are being offered to cat bond investors with price guidance in a range from 3.5% to 4%.
It’s encouraging to see another new cat bond sponsor this year, especially as growth underwriters like The Hanover are likely to become repeat sponsors that integrate cat bonds firmly within their reinsurance towers.