The new catastrophe bond issuance being sponsored by Validus, the Bermuda headquartered reinsurance underwriting arm of AIG, looks likely to upsize to at least $400 million in size, perhaps $425 million if the upper-target for the Tailwind Re Ltd. (Series 2022-1) transaction is achieved.
Validus returned to the catastrophe bond market earlier this month, with this second Tailwind Re issuance targeting at least $275 million of collateralized aggregate retrocessional reinsurance protection from the deal.
Now, we’re told by sources that the target size has increased significantly, with as much as $425 million of aggregate retro now sought by Validus through the Tailwind Re 2022-1.
This new issuance, which will be the first cat bond of 2022 it seems, can be considered a renewal of Validus’ first Tailwind Re, a a $400 million Tailwind Re Ltd. (Series 2017-1) cat bond that was the reinsurers’ first ever full cat bond issuance.
That transaction matures in early January, so this Tailwind Re 2022-1 cat bond appears to be a straight renewal.
Based on the expected upsizing of the new cat bond issuance, it looks as if Validus will at least replace that maturing coverage, perhaps add to it slightly if the new top-end target of $425 million is achieved.
Tailwind Re Ltd. will issue four tranches of Series 2022-1 notes that will be sold to cat bond investors and the proceeds used to collateralize retro reinsurance agreements between the issuer and Validus Holdings, with protection extending across Validus Re, Talbot Underwriting and its syndicate 1183 at Lloyd’s of London.
The Tailwind Re 2022-1 cat bond will provide Validus and its covered subsidiaries with a collateralized retrocession covering U.S., Canada, Puerto Rico and U.S. Virgin Islands named storm and earthquake risks, on an annual aggregate basis, using a weighted PCS industry loss index trigger and with coverage set to run across three years to the end of 2024.
Four tranches of notes continue to be offered to investors, all exposed to losses from the same perils and territories on the same industry loss and annual aggregate basis.
At launch, the deal featured a $100 million Class A tranche of notes which is the lowest risk layer of this cat bond, having an initial attachment probability of 3.92%, an initial expected loss of 3.63% and being offered to investors with price guidance of 6.75% to 7.5%.
The Class A tranche remains $100 million in size, we’re told, but the pricing has now been fixed at the low-end of guidance, at 6.75%.
A $100 million Class B layer of notes, the next riskiest, having an initial attachment probability of 5.24% and an initial expected loss of 4.5%, has upsized to $150 million, we understand. The Class B notes were first offered to investors with price guidance of 8.75% to 9.5%, but this has now been fixed at the low-end of 8.75%.
A $75 million tranche of Class C notes has also upsized to $100 million, and has an initial attachment probability of 6.4%, an initial expected loss of 5.82%. The Class C notes were first offered to investors with price guidance of 11.75% to 12.75%, but this has now been fixed at the low-end again of 11.75%.
Finally, what was an unsized Class D tranche of notes, is now aiming for between $50 million and $75 million of coverage, and have an initial attachment probability of 7.3% and initial expected loss of 6.84%. These Class D notes were first offered to investors with price guidance of 15.25% to 16.25%, and this has also fallen to a new tighter range of 14.75% to 15.25%.
So, all four tranches of cat bond notes have seen their pricing fall to the bottom of guidance at least, while overall the deal has increased in size for Validus.
For an annual aggregate retro cat bond this is a strong result in a challenged reinsurance marketplace for Validus, especially with the price already fixed at the bottom of guidance for three of the tranches of notes.
It shows that cat bond execution and pricing remains very attractive for major reinsurers,.
However, it is also worth noting that the pricing of these tranches was relatively generous compared to some other recent aggregate cat bonds that have priced up. Showing that, where you pitch pricing at the start of the bookbuilding process remains important.
You can read all about this new Tailwind Re Ltd. (Series 2022-1) cat bond transaction from AIG’s reinsurer subsidiary Validus, as well as every other catastrophe bond issuance in our Artemis Deal Directory.