CEA to complete Ursa Re II 2022 cat bond at reduced $245m

The California Earthquake Authority (CEA) will now secure its latest catastrophe bond to provide a reduced $245 million in collateralized California earthquake reinsurance protection through the Ursa Re II Ltd. (Series 2022-1) issuance.

The initial target size was $275 million when the CEA came back to market for its latest catastrophe bond earlier in May.

The CEA was looking to secure $275 million or more of multi-year and fully-collateralized California earthquake reinsurance protection through two tranches of notes issued by its Ursa Re II Ltd. Bermuda based SPI.

As we updated readers last week, the target was dropped to between $210 million and $255 million across the two tranches of Series 2022-1 notes.

Now, we can report that the CEA has elected to complete the new Ursa Re II cat bond at just $245 million in size, so slightly below the upper-end of its lowered size target for the deal.

As we explained, the CEA is a significant buyer of reinsurance and its team will have been balancing cost and availability of capacity in the traditional and catastrophe bond market’s, to secure the cover they need at the most efficient terms, which this time around has led to a slightly smaller than anticipated catastrophe bond issuance.

At the same time, we’re told the cat bond has been priced at the top of raised coupon guidance, like so many other recent deals.

So the cat bond will now provide the CEA with a $245 million source of indemnity triggered annual aggregate based reinsurance against California earthquake losses, across a roughly three-year term.

The Class A notes actually upsized, having begun at $150 million and now fixed at $175 million, we’re told.

The Class A notes will cover a percentage of a $500 million layer of the CEA’s reinsurance, attaching above just over $7 billion, giving them an initial expected loss of 1.33% and were first offered to cat bond investors with price guidance in a range from 4.25% to 4.75%.

That price guidance for the Class A notes was then raised to above that initial range, at 5%, which is where we’re now told the coupon has been fixed.

What was a $125 million tranche of Class B notes was then reduced, in target terms to $60 million to $80 million.

We’re now told this higher risk layer has been finalised at $70 million in size for the CEA.

The Class B notes will cover a percentage of another $500 million layer of the CEA’s reinsurance, attaching close to $2.85 billion (so riskier), giving them an initial expected loss of 3.28% and were first offered to cat bond investors with price guidance in a range from 6.75% to 7.5%.

The Class B notes pricing was also lifted, with them subsequently offered with guidance of 7.5% to 7.75%, and we’re now told the coupon has been fixed at the top-end of 7.75%.

As we said, this outcome is a clear reflection of the challenging cat bond and reinsurance market environment, with rates rising and appetites smaller, even for a diversifying quake bond at a time of peak US hurricane cat bond issuance.

But it’s encouraging to see regular sponsors like the CEA persisting and still placing a reasonable sized cat bond issuance, in this challenging market environment.

You can read all about this new Ursa Re II Ltd. (Series 2022-1) catastrophe bond and every other deal from prolific sponsor the CEA in the extensive Artemis Deal Directory.