Nephila secures $90m of industry-loss retro for Lloyd’s syndicate with Atela Re cat bond

Nephila Capital, the insurance-linked securities (ILS) investment manager owned by Markel, has now successfully secured $90 million in aggregate industry-loss index based retrocessional reinsurance for its flagship Lloyd’s syndicate 2357, through its Atela Re Ltd. (Series 2024-1) catastrophe bond issuance.

It’s slightly below the initial target for $100 million of retrocession that this deal came to market with when it launched and the pricing has been finalised well above the initial guidance ranges.

This will be the first catastrophe bond directly sponsored by an entity of ILS manager Nephila Capital and also the first to target protection for its Lloyd’s syndicate.

When this Atela Re 2024-1 catastrophe bond transaction was first launched to investors a few weeks ago, Nephila’s target was to secure $100 million or more in aggregate industry-loss index based retrocessional reinsurance for its flagship Lloyd’s syndicate 2357.

As we later reported, the target size for this Atela Re 2024-1 cat bond was lifted to between $90 million and $110 million, while at the same time the price guidance that was initially offered has been updated at a considerably higher level for each tranche.

Now, we’re told the notes have been priced at those same elevated levels, while the size of the transaction has been finalised at the low-end of that range.

Atela Re Ltd. will issue two tranches of Series 2024-1 cat bond notes, to provide syndicate 2357, via Nephila Syndicate Management, with a $90 million, three year source of annual aggregate and industry loss index based retro reinsurance protection.

This retro protection will be against major industry losses from US named storms and US earthquakes, while a franchise deductible will be in place for both perils.

As we had stated in our previous coverage, this cat bond from Nephila Capital sees Florida named storm as the dominant exposure for both tranches of notes, at more than half the expected loss in each case.

When the deal was launched to cat bond investors, the overall target size for the issuance was said to be $100 million in size, but the individual tranches did not have targets set.

At the first update, the Class A tranche of notes were being offered at between $60 million and $70 million in size, and we’re now told they have priced to provide $60 million of protection to Nephila Syndicate 2357.

The Class A notes come with an initial base expected loss of 5.15% and were first offered to investors with price guidance in a range from 11.25% to 12.25%, but that was increased by 21% from the mid-point and we’re told have now priced to pay investors a spread of 14.25%,

The Class B tranche, which are the riskier of the two layers, was initially sized at between $30 million and $40 million and we’re now told will provide the lower-end of $30 million of protection.

The Class B notes come with an initial base expected loss of 8.36% and were first offered to investors with price guidance in a range from 18.25% to 19.25%, but that too was lifted higher by some 17% from the mid-point and are now priced for a spread of 22% to be paid, sources said.

Nephila Capital seems to be making use of all sources of risk capital to put in place the necessary peak peril hedges it desires for the coming wind season and rest of the year. It’s already known the ILS manager had been active in the industry-loss warranty (ILW) market as a buyer this year, now it has secured ILW-like protection from the catastrophe bond market as well.

While industry-loss trigger cat bonds, like industry-loss warranties (ILW’s), have seen spreads tighten faster and further than indemnity equivalents in 2024, this has made the cost of coverage compelling. But, the pricing moves seen with this catastrophe bond still show that the market has minimum return requirements it needs to enforce.

You can read all about this new Atela Re Ltd. (Series 2024-1) catastrophe bond transaction and every other cat bond ever issued in our Artemis Deal Directory.