Ariel Re pulls Titania cat bond issuance due to market pricing: Sources

We’re told by sources that global reinsurance player Ariel Re has opted to pull its latest catastrophe bond issuance as a response to the dynamic and higher cat bond market pricing environment, so the Titania Re Ltd. (Series 2024-1) transaction will not now be issued.

Ariel Re returned to the catastrophe bond market around three weeks ago, seeking what would have been its fourth issuance in the Titania Re series of cat bond deals.

In this case, the initial target was to secure $100 million or more in multi-peril industry-loss triggered retrocession, through a two tranche of notes Series 2024-1 issuance by Bermuda based special purpose insurer Titania Re Ltd.

The cat bond would have protected Ariel Re’s Lloyd’s Syndicate 1910 for major losses from U.S. 50 state, Puerto Rico, U.S. Virgin Islands, D.C. and Canada named storms and earthquakes.

Since we first learned about Ariel Re’s latest catastrophe bond sponsorship back on May 8th, things have gone very quiet with the deal, almost suspiciously so.

Fuelling a suspicion that this cat bond issuance may not be sailing to market in the usual smooth manner for Ariel Re, is the recent market pricing dynamic and the way industry-loss trigger cat bonds have been pricing up of late.

As a result, we began asking around about this cat bond over a week ago and have now learned today, from a number of our market sources, that Ariel Re has opted to pull this cat bond from the market, at least for now.

We’re told that pricing is the driver, given the much higher spreads now being demanded for index-trigger cat bonds.

With the Titania Re cat bond an industry-loss trigger structure with a focus on the United States and with hurricane risk contributing over 95% of the expected loss for each tranche, it’s perhaps no surprise, given Ariel Re is a sophisticated buyer of retrocession.

Industry-loss trigger cat bonds have seen their spreads widen the most in recent weeks and a number of new issues with this trigger have seen their issuance prices rise above their initial guidance.

These US wind-exposed index-trigger cat bonds are also the ones to have seen the largest price adjustments and the largest increases in expected loss under the new RMS V23 hurricane risk model, as we reported today.

It seems Ariel Re will have weighed up the response of investors to its new Titania Re cat bond versus other forms of retrocession and perhaps found the pricing in the cat bond market less appealing than it had initially expected it to be, as the spread widening has accelerated through May.

We hinted this might end up being the case in an article published yesterday, where, in commenting on the rest of this first-half’s scheduled cat bond deals, “One of those issues has gone suspiciously quiet though (Ariel Re’s latest Titania deal), so could end up falling into June, or perhaps even be pulled given where pricing has moved to.”

As a result, the pulling of this cat bond is not entirely unexpected, as Ariel Re has previously seen all of its Titania cat bond issues price down during their issuance, so current market conditions are likely deemed not attractive enough to continue with this latest deal at this time.

The Titania Re 2024-1 cat bond is the only one not to get issued and we have seen two industry-loss trigger cat bonds getting priced successfully in recent days, so not all sponsors are getting put off by the recent price dynamics in the market.

But Ariel Re is a price-sensitive buyer of protection in all its forms, we understand, so this won’t necessarily read-across to other sponsors at this time and with just days to hurricane season now, we may not see many (or any) other similar index-trigger cat bonds come to market until after the season’s peak anyway.

Ariel Re has said before that its catastrophe bonds are an important part of its strategy and we don’t expect that commitment will change. Just, in this case, the pricing moves seen over recent weeks has made the cost of coverage less conducive to completing the issuance.

We would imagine the company will return with more Titania Re cat bonds when market conditions are seen as more attractive by the company.

Read about all of Ariel Re’s catastrophe bonds in our extensive Deal Directory.