Covéa targets €100m+ windstorm reinsurance with Hexagon IV Re cat bond
French mutual insurer Covéa Group is back in the catastrophe bond market with its fourth catastrophe bond deal, seeking €100 million or greater in fully-collateralized windstorm reinsurance protection from the capital markets with this Hexagon IV Re Ltd. (Series 2023-1) issuance.
Covéa Group had sponsored its first two catastrophe bonds out of Ireland and its third in 2021 saw the issuer domiciled in Singapore.
But, for its fourth cat bond sponsorship, we’re told Covéa Group has shifted to use Bermuda, with Hexagon Re IV Ltd. established on the island and expected to be registered as a special purpose insurer (SPI) for the issuance of series of catastrophe bonds.
Hexagon IV Re Ltd. is set to issue two tranches of Series 2023-1 cat bond notes that will be sold to insurance-linked securities (ILS) investors and the proceeds used to collateralize a reinsurance agreement between the issuer and Covéa Group named insurers MMA IARD SA, MMA Assurance SA, and GAF Assurance.
The at least €100 million of reinsurance being targeted with the Hexagon Re IV 2023-1 cat bond provides will cover Covéa and its mutual insurers against losses from windstorms affecting France, Monaco and Andorra.
The reinsurance protection will cover Covéa and its insurers across four calendar years from January 1st 2024 to the end of 2027, we understand.
The cat bond notes will feature an indemnity trigger and provide reinsurance cover on a per-occurrence basis.
Each of the covered insurers has a deductible in place, before third-party reinsurance sources kick-in, and the two tranches of Hexagon Re IV 2023-1 cat bond notes will sit in layer two and three of Covéa’s reinsurance tower, we understand from sources.
A targeted €100 million Class A tranche of notes would attach at €125 million of losses, above the deductibles, covering a share of losses to €375 million, giving them an initial attachment probability of 6.44%, an initial expected loss of 4.35% and these notes are being offered with price guidance for a spread of between 8% and 8.75%, we’re told.
A Class B tranche of notes are unsized and sit beneath the A’s, attaching at €25 million of losses, above the deductibles, covering a share of losses to €125 million, giving them an initial attachment probability of 10.64%, an initial expected loss of 8.08% and these notes are being offered with price guidance for a spread of between 14.75% and 15.75%.
The riskier B tranche of notes will sit alongside the 2021 Hexagon III cat bond B’s, which at issuance had an expected loss of 8.05% and priced with a spread of 11%.
Which makes the higher pricing of the cat bond market and harder reinsurance conditions we see today evident and reflects investor demand to be better compensated for taking on catastrophe risks at this time.
You can read all about this new Hexagon IV Re Ltd. (Series 2023-1) catastrophe bond from Covea Group and every other cat bond transaction in our Deal Directory.
