Core Specialty lowers target slightly for Yosemite cat bond as price rises

The first catastrophe bond to be sponsored by re/insurer Core Specialty, the Yosemite Re Ltd. (Series 2022-1) deal we first wrote about earlier this month, looks like it could struggle to reach its targeted minimum for size, with the issuance now updated to seeking between $65 million and $75 million of multi-peril US reinsurance for the company.

When we first wrote about the Yosemite Re catastrophe bond on May 6th, we explained that this first cat bond to be sponsored by the relatively young specialty insurance and reinsurance group Core Specialty Insurance Holdings, Inc. was aiming to secure at least $75 million of interest from investors.

After a three-week period of silence, the latest update on the Yosemite Re cat bond now suggests the appetite for coverage has had to be reduced slightly, with only up to $75 million of reinsurance coverage now sought.

This appears to be in response to market pricing and the investor response to the deal, as at the same time we’re told that the pricing has risen to the top-end of guidance.

It’s the first time Core Specialty has visited the capital markets for reinsurance to protect its insurers, with those companies under the StarStone brand to be covered to begin.

The ceding insurers for the Yosemite Re Ltd. catastrophe bond will therefore be StarStone National Insurance and StarStone Specialty Insurance, but any other Core Specialty subsidiaries can be added as cedents to the reinsurance the cat bond provides in the future, meaning its Lancer companies could be added in future.

The Yosemite Re Ltd. launched to investors earlier in May, seeking to issue a $75 million or greater single Class A tranche of Series 2022-1 notes to provide the StarStone companies (initially) with a multi-year source of collateralized catastrophe reinsurance protection against losses from named storms and earthquakes across the United States.

The indemnity and per-occurrence based reinsurance coverage will run for a three year term to the end of May 2025, attaching at $300 million of losses to the covered companies, while exhaustion of coverage would be at $570 million of losses.

That left plenty of room for this cat bond to upsize, but in the current market conditions it appears that hasn’t been either possible, or attractive to Core Specialty.

So, the Class A Series 2022-1 notes are now pitched at between $65 million and $75 million in size, with their initial attachment probability 2.32% and initial expected loss 1.16%.

When first offered to cat bond investors, the Class A notes Yosemite Re is issuing came with coupon guidance in a range from 8.75% to 9.75%.

We’re now told the coupon has been fixed at the high-end of 9.75%, the latest cat bond to see its pricing elevated.

It is a particularly high multiple-at-market for a per-occurrence, relatively straight-forward, cat bond deal, which reflects the hardened pricing in the catastrophe bond market at this time.

While catastrophe bond market conditions are challenging right now, it’s encouraging to see a new sponsor persevering, reflecting Core Specialty’s desire to bring the capital markets into its reinsurance program.

Read all about this Yosemite Re Ltd. (Series 2022-1) catastrophe bond and every other cat bond deal issued in our extensive Artemis Deal Directory.