Palomar targets $300m Torrey Pines Re 2022 earthquake cat bond

Palomar Insurance Holdings, the speciality California-headquartered insurer that provides largely catastrophe exposed property products, is back in the catastrophe bond market, sponsoring its third issuance, with a Torrey Pines Re Ltd. (Series 2022-1) deal through which it is seeking $300 million or more of US earthquake reinsurance protection.

Palomar first sponsored a $166 million Torrey Pines Re Ltd. (Series 2017-1) catastrophe bond back in 2017, that gave the insurer a source of multi-year and multi-peril catastrophe reinsurance, covering U.S. named storms, severe thunderstorms and earthquakes.

The insurer then returned in 2021, using Singapore to issue a $400 million Torrey Pines Re Pte. Ltd. (Series 2021-1) US earthquake only cat bond transaction.

Now, we’re told that the company is back seeking more cover for its peak peril of US quake, and for its third deal has reverted back to using its Bermuda based special purpose insurer (SPI) Torrey Pines Re Ltd., through which it sponsored the cat bond in 2017.

Torrey Pines Re Ltd. will seek to issue two tranches of notes that will be sold to investors and the proceeds used to collateralize reinsurance agreements between the SPI and Palomar Specialty Insurance Company.

The reinsurance agreements will provide Palomar with just over three years (to June 2025) of US-wide earthquake reinsurance protection, on an indemnity and per-occurrence basis, we understand.

The target is to secure at least $300 million of reinsurance protection, a significant capital markets addition when you consider Palomar already has $400 million of US quake cover from its 2021 cat bond.

Torrey Pines Re will issue a Class A tranche of notes, preliminarily sized at $175 million we understand, with an attachment point of $825 million and covering losses up to $1.125 billion for Palomar.

The Class A notes will have an initial expected loss of 1.23% and are being offered to cat bond investors with price guidance in a range from 3.35% to 3.85%, we’re told.

A currently $125 million Class B will have an attachment point of $250 million, so being much riskier, and exhaust at $425 million.

The Class B notes will have an initial expected loss of 3.77% and are being marketed to investors with price guidance in a range from 6.5% to 7%, sources said.

These new tranches of US quake exposed cat bond notes will sit neatly with the two tranches of the 2021 deal and the pricing looks to be a little higher on a multiple-at-market basis, as you’d expect in the hardening reinsurance market environment.

It’s encouraging to see Palomar looking to embed more multi-year capital markets backed reinsurance into its protection tower, with cat bonds set to be a serious contributor to its earthquake coverage.

You can read all about this Torrey Pines Re Ltd. (Series 2022-1) catastrophe bond and every deal issued since 1996 in the Artemis Deal Directory.