Pool Re’s new cat bond upsized to UK £100m as it renews £2.5bn retro tower

UK government backed mutual terrorism reinsurance firm Pool Re has upsized its new Baltic PCC Limited (Series 2022-1) terror catastrophe bond to £100 million in size, helping it to increase the size of its retrocession tower to UK £2.5 billion at the renewal, up from £2.475 billion a year ago.

Pool Re returned to the catastrophe bond market with the Baltic PCC 2022-1 catastrophe bond renewal a couple of weeks ago, with a UK £75 million target for the deal.

The offering has been well-received by investors, we understand, helping Pool Re to expand it to £100 million in size, which has pushed out the top of its retro tower to a new high level.

Full details of the 2022-1 vintage of Pool Re’s landmark terror catastrophe bond can be found in our Deal Directory entry.

The Series 2022-1 notes that Baltic PCC Limited will issue have now been priced.

The notes will have an initial attachment probability of 2.59%, an initial expected loss of 2.38%. They were first offered to cat bond investors with price guidance in a range from 5.25% to 5.75%, but we’re now told that pricing has now been fixed at the mid-point of guidance, at 5.5%.

For comparison, the Baltic PCC 2019 terror cat bond notes carried an initial expected loss of 2.71% and priced at the top-end of the initial guidance, to offer investors a 5.9% coupon (a 2.18 multiple of EL at market).

This new Baltic PCC 2022 terror cat bond will see investors paid a multiple of EL at market of 2.3 times, so despite the diversifying nature of the peril this still reflects the firming of the catastrophe bond market since that time.

Onto the broader renewal, Pool Re’s retrocession program is structured as an aggregate excess of loss treaty, but this time it’s been secured as a three-year retrocession agreement, instead of the one-year cover it renewed a year ago.

Insurance-linked securities (ILS) market participation is again limited to the Baltic PCC catastrophe bond component it seems.

Pool Re’s renewed retro reinsurance tower features 50 international reinsurers participating, but was led by Munich Re with Hannover Re and Fidelis among others providing significant capacity.

The retrocession reflects the reinsurance Pool Re provides, so covers property damage from nuclear, biological, chemical, and radiological attacks (CBRN); as well as those arising from cyber-triggered terrorist losses; plus conventional terrorist acts.

The retro protection will respond if Pool Re’s losses, individually or in aggregate, exceed £400 million in any year.

For 2022, the limit and attachment of layers was amended a little, with the growth coming from the addition of a new layer 4 of £25 million.

That new layer provides Pool Re with an additional piece of its tower that it can look to expand in future years, so that its retro protection can keep pace with the expansion of the reinsurance coverage it provides to clients.

Steve Coates, Pool Re’s chief underwriting officer, commented, “We are delighted to achieve an increase in this important retrocession placement which puts further distance between the taxpayer and the cost of terrorism losses. We have received broad support from reinsurers around the world who appreciate our strong focus on risk management, supported by credible, advanced modelling tools. This has all contributed to unaltered pricing on a risk adjusted basis.”

Julian Enoizi, Pool Re chief executive added, “We can be rightly proud of an excellent outcome for this placement. Pool Re’s extended retrocession placement is the largest terrorism reinsurance programme in the world and we have consistently sought to increase the amount we place as part of our strategy to return UK terrorism risk to commercial markets.

“Our ILS bond, where we are also seeking increased levels of indemnity, is being finalised and we hope to be able to announce its completion in the coming days.”

With the catastrophe bond now priced, Pool Re has now secured the aimed for increased levels of indemnity that Enioizi mentions, helping to grow the capital markets share of the terrorism reinsurance pool’s retro program.

You can read all about Pool Re’s new Baltic PCC Limited (Series 2022-1) catastrophe bond issuance and every other catastrophe bond transaction since the market began in the Artemis Deal Directory.