Convex gets 50% upsized $150m Hypatia cat bond priced ~22% under guidance

Convex Group, the specialty insurance and reinsurance company, has now successfully executed on its latest catastrophe bond, with the new Hypatia Ltd. (Series 2023-1)  issuance coming in 50% larger than the initial target to provide $150 million of protection, while the notes were priced around 22% below the initial mid-point of spread guidance.

It’s a very strong result for Convex, securing retrocessional reinsurance at what appears a very reasonable price for the current hard market environment.

It’s also a further indication of catastrophe bond pricing having come off its peaks from earlier this year, as we’ve been indicating was becoming a trend for a month now, as the market responds to elevated investor appetite and increased capital availability.

Convex is accessing the capital markets for retrocessional reinsurance via its Convex Re reinsurance division, although the cover is effectively for the group underwriting businesses.

Now this transaction has priced, Convex has secured $150 million of retrocessional protection against losses from U.S. named storms, including Puerto Rico, D.C and the US Virgin Islands, and both U.S. and Canadian earthquake risks, on an annual aggregate basis, using a weighted PCS industry loss index trigger, across a three year term.

The Hypatia 2023-1 cat bond transaction was initially marketed at just $100 million in size, with a single tranche of notes that have a base expected loss of 2.52% and with initial price guidance in a range from 11.75% to 12.5%.

The size target was lifted 50% during the marketing of the deal, while the price guidance was in the end reduced twice.

At final pricing, Convex secured the retro reinsurance from this new Hypatia Ltd. 2023-1 catastrophe bond deal at the upsized $150 million target and with the spread fixed at 9.5%, which was the bottom-end of the twice reduced guidance range.

Given the initial base expected loss of 2.52% and spread of 9.5%, the multiple-at-market for Convex’s new cat bond is just 3.8 times the expected loss, which is very low for an aggregate deal in the current market pricing environment.

In fact, the execution of this new catastrophe bond sets a low bar for issues since hurricane Ian, we feel, perhaps indicating where pricing could settle as new capital begins to flow in.

So, a very successful second visit to the catastrophe bond market for Convex, with strong price execution helping the company maximise the benefits of capital markets reinsurance protection.

Perhaps the best comparison, for a recent industry-loss trigger cat bond with a similar expected loss, would be Ariel Re’s Titania Re Ltd. (Series 2023-1) from February, one tranche of which had an initial base expected loss of 2.59% and priced at 12.25%, so a multiple of 4.73 times.

Convex’s new Hypatia 2023-1 Class A notes, with their initial base expected loss of 2.52% and pricing of 9.5%, come with a multiple of 3.77 times the EL, reflecting the recent softening of cat bond prices in March, it seems.

You can read all about Convex’s new catastrophe bond, this Hypatia Ltd. (Series 2023-1)  transaction, and almost every other cat bond ever issued in the Artemis Deal Directory.