Global insurance giant Allianz is returning to the catastrophe bond market seeking a group-wide source of European storm reinsurance of €250 million or more, with Blue skies regarding the DAC (2023-1) emission.
Allianz appears several times in our extensive directory of catastrophe bond transactionsbut in recent years its Allianz Risk Transfer division has provided a retrocession for some of the risk it carried for ILS funds.
Before that, the last time we saw Allianz Group in the catalytic bond market was in 2013.
It is therefore encouraging to see Allianz once again seeking reinsurance to cover its European exposures on a group-wide basis and is another signal on European reinsurance renewals, showing that this type of protection is seen as equally likely to be insured in the catalytic bond market, from traditional reinsurance and retrocession sources, which is positive for the catalytic bond market to expand its footprint to European perils, we believe.
Allianz created an ad hoc Irish company to issue this catastrophe bond, Blue Sky Re DAC.
Blue Sky Re DAC will issue a single tranche of notes which will be sold to investors and the proceeds will be used to secure a reinsurance agreement between it and Allianz.
Currently, the offering is for 250 million euros of notes, with the aim of finding capital markets-backed reinsurance to cover Allianz group companies against windstorm-related losses in Europe, in all major countries exposed, on a weighted basis of loss trigger by sector and by event, we understand.
The largest contributors to the expected loss of this new Allianz catalytic bond would be the countries of Germany, the United Kingdom and France.
We are told that Allianz’s coverage under this catalytic bond would extend over three calendar years, from January 1, 2024 to the end of 2026.
The €250 million bonds to be issued by Blue Sky Re DAC will have an initial fixing probability of 3.03%, an expected initial loss of 2.14% and are being offered to catalytic bond investors with indications of price for a spread between 5% to 5.75%, according to sources.
It is encouraging to see an insurer of Allianz’s size return to the catastrophe bond market this year and the fact that it is seeking leading European risk coverage suggests that reinsurance renewal terms on this continent could become more attractive for insurance-related securities. (ILS) in general, which is a positive signal.
The multiple offered by these securities is, however, relatively low, so it will be interesting to see how the catalytic bond market reacts and what investor appetite is for this product.