U.S. primary insurer AIG and its affiliate companies are set to benefit from a new $300m source of fully-collateralized parametric reinsurance cover, after its Compass Re II Ltd. (Series 2015-1) catastrophe bond upsized by 50% to $300m.
In an encouraging sign for the use of parametric triggers in catastrophe bonds, the Compass Re II 2015-1 cat bond has grown in size thanks to investor demand, jumping by 50% from the $200m it launched at to reach $300m at pricing.
As the first cat bond covering U.S. wind or hurricane risks to feature a parametric trigger since mid-2009, it's good to see Compass being well received by investors.
AIG's latest cat bond launched just over a week ago, with the primary insurer seeking a six month source of U.S. wind and hurricane reinsurance protection, along the Gulf and East coasts from Texas to Massachusetts, on a per-occurrence basis and using a parametric trigger.
The single tranche of notes launched at $200m with price guidance of 4.5% to 5.25%, although it is important to note that these are discount, or zero coupon, notes, meaning that the premium is paid at the end of the term.
At pricing on the 21st May, we understand that the tranche size has grown to $300m while the pricing was fixed at 5%, so towards the upper end of the initial guidance range.
It will be interesting to see whether other large sponsors may choose to emulate AIG and add a parametric layer of reinsurance protection. In the current pricing environment for catastrophe reinsurance risks and with investors liking parametrics due to their transparency and quick payout, it would make sense for others to follow suit.
For Rewire Holdings LLC, the firm that has structured this deal and also offered it through its online platform Rewireconnect, the success of this issue, being the team's first cat bond, will be encouraging. Rewire has successfully brought an innovative and unique (in recent times) cat bond to market for one of the world's largest sponsors.
We understand that the Compass Re II Ltd. (Series 2015-1) catastrophe bond will actually count towards June issuance, as it is slated to settle on the first of the month. Once this cat bond is complete AIG will have $1.225 billion of reinsurance coverage provided by its in-force catastrophe bonds.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
