Convex Group, the specialty insurance and reinsurance company founded by Stephen Catlin, has returned to the catastrophe bond market for the second time in its history, with a $100 million or higher target for a Hypatia Ltd. (Series 2023-1) cat bond issuance.
Convex sponsored its first Hypatia catastrophe bond back in 2020, when it secured $300 million of protection from the capital markets.
For this 2023 Hypatia cat bond issuance, Convex is seeking coverage for the same perils and in the same format as that deal, coverage for the peak North American perils of hurricane and earthquake risks, on an industry loss basis.
The new cat bond will provide retrocessional reinsurance to the Convex Re reinsurance division, just like the first Hypatia cat bond as well.
The cedent will be Convex Re itself, the Convex group reinsurance entity, but the cat bond will also cover subsidiary entities such as Convex’s UK insurer, as the 2020 deal did.
We’re told that on behalf of cat bond sponsor Convex Re, Bermuda based special purpose insurer Hypatia Ltd. will issue a single tranche of Series 2023-1 cat bond notes, with a $100 million or greater target for the issuance.
The notes Series 2023-1 Class A notes that Hypatia issues will be exposed to losses from U.S. named storms, including Puerto Rico, D.C and the US Virgin Islands, and both U.S. and Canadian earthquake risks.
The retro reinsurance coverage will be on an annual aggregate basis, using a weighted PCS industry loss index trigger, and run across a three year term, just like the 2020 deal.
The currently $100 million of Series 2023-1 Class A notes that Hypatia Ltd. will issue, are set to provide Convex with aggregate industry loss based retro reinsurance, from an attachment point of $3.8 billion of losses, covering up to $4.3 billion, and with a after a $1 billion franchise deductible enforced, we are told.
The Class A notes will come with an initial attachment probability of 2.81%, an initial base expected loss of 2.52% and are being offered to investors with coupon guidance of 11.75% to 12.5%, sources said.
Convex’s Hypatia 2020 cat bond, which came in two tranches, matures this June, so this new issuance will go some way to renewing that cover it seems.
As a result, it will be interesting to see whether Convex takes the opportunity to upsize this deal, to replace more of the maturing $300 million cat bond.
The multiple-at-market of this new cat bond from Convex would come out around 4.8 times the expected loss, should it price at the mid-point of initial price guidance.
Convex’s 2020 cat bond tranches priced with a multiple of 3.9 times the EL for the lower-risk layer of notes and 3.2 times EL for the higher-risk notes.
So there is certainly a price increase here, as evidenced by the potential spread above expected loss being indicated as closer to 10%.
You can read all about Convex’s second catastrophe bond, this Hypatia Ltd. (Series 2023-1) transaction, and almost every other cat bond ever issued in the Artemis Deal Directory.