Global reinsurance company Ariel Re has now secured its new catastrophe bond, the Titania Re Ltd. (Series 2023-1) issuance, to provide a slightly upsized $125 million of retro reinsurance cover, while pricing settled at the low-end of already reduced pricing.
Ariel Re’s latest cat bond issuance has provided a clear signal of the catastrophe bond market reaching an equilibrium, in terms of pricing demanded by its investors and investment fund managers.
When Ariel Re’s third Titania Re cat bond deal was launched to investors at the end of January, the reinsurance firm was seeking $115 million of multi-peril industry-loss triggered retrocession from the transaction.
At the same time, the pricing on offer was at higher levels at the time, but while the book was building for this cat bond, the price guidance was lowered twice in response to demand and to maximise the efficiency of execution for sponsor Ariel Re.
The end result is that the cat bond increased in size to provide Ariel Re with a $125 million source of collateralized retrocessional reinsurance protection from the capital markets.
The Titania Re 2023-1 cat bond will cover Ariel Re for certain losses from U.S. 50 state, Puerto Rico, U.S. Virgin Islands, D.C. and Canada named storms and earthquakes, on an industry loss index trigger basis over a three-year term.
At the same time, the pricing has now been finalised at the bottom end of the twice reduced price guidance.
A Class A tranche of Titania Re Series 2023-1 cat bond notes were first marketed at $65 million in size, but have now been fixed to provide Ariel Re with $75 million of annual aggregate cover across both named storm and earthquake perils.
The Class A notes, which have an initial base expected loss of 2.59%, were first offered to cat bond investors with spread guidance of 13% to 13.75%, but that price guidance was lowered at first to 12.75% to 13%, and reduced again to between 12.25% and 12.75%.
We’re now told the Class A notes have been priced for a 12.25% spread, representing a just over 8% decline in pricing from the initial mid-point while they were marketed.
Meanwhile, the Class B tranche remained at $50 million in size, to provide Ariel Re per-occurrence named storm only protection over the same three-year term.
The Class B notes, which have an initial base expected loss of 3.82%, were first offered to investors with spread guidance in a range from 13.5% to 14.25%, which was first lowered and narrowed to 13.25% to 13.5%, and then reduced again to 12.75% to 13.25%.
We’re now told the Class B notes have priced for a 12.75% spread, representing again a just over 8% drop in price from the initial mid-point of guidance.
While this cat bond has priced down, it’s much more important to consider how the multiples have been fixed, than the fact it has priced down when other recent deals had largely priced up.
The pricing suggests a cat bond market with much better equilibrium and more able to match capital with demand for protection efficiently.
But the multiples-at-market remain significant, at 4.7 times expected loss for the Class A notes, and 3.3 times for the Class B tranche.
For a rough pricing comparison, the Titania Re 2021-2 notes are closest to the 2023-1 Class A notes, being multi-peril, which had an initial expected loss of 3.32% and priced to pay investors a spread of 6.5%.
So those cat bond notes issued in 2021 paid investors a multiple-at-market of just below 2 times the initial expected loss, meaning the multiples in this new 2023 issuance are still significantly higher.
But, make no mistake, this is a strong result for Ariel Re, especially when you consider that the average multiple-at-market of cat bonds issued in 2023 so far sits at a stunning 8 times the expected loss.
You can read all about this new Titania Re Ltd. (Series 2023-1) catastrophe bond from Ariel Re, as well as details on over 900 other cat bond transactions in the extensive Artemis Deal Directory.