Liberty Mutual secures $325m Mystic Re IV catastrophe bond at reduced pricing

Liberty Mutual has now secured the upsized target of $325 million of fully collateralized reinsurance protection through its new Mystic Re IV Ltd. (Series 2025-1) catastrophe bond, while the insurer benefited from high investor demand and strong cat bond execution to price the deal largely below initial guidance.

Liberty Mutual Insurance came back to the cat bond market in November with an initial target to secure at least $225 million of indemnity based catastrophe reinsurance protection from the capital markets through this Mystic Re IV 2025-1 cat bond deal.

Once settled, this will be the tenth cat bond in the Mystic Re series from the company that we have analysed and listed in our Deal Directory.

At launch to investors, only two tranches of per-occurrence notes had been given size guidance while market appetite for an annual aggregate layer was still being assessed.

In a first update, the annual aggregate tranche of notes were also given a size target, which took the total offering to $325 million in size, while at the same time the pricing was lowered somewhat.

Then, in a second update, we learned that the size target had remained static, but price guidance for two of the tranches of notes on offer had fallen further, indicating even stronger execution for the sponsor.

Now, sources have told us that all three tranches of Series 2025-1 notes to be issued by Mystic Re IV Ltd. have been successfully priced, to secure the upsized target for $325 million of reinsurance, while pricing was largely below the initially marketed ranges.

As a result, with the new cat bond now priced, Liberty Mutual has secured $325 million of multi-peril collateralized reinsurance cover on both a per-occurrence and annual aggregate indemnity trigger basis from the capital markets, across a three calendar year term, from January 1st 2025.

This Mystic Re IV 2025-1 cat bond will provide Liberty Mutual with reinsurance protection against losses from named storms and earthquakes on an indemnity basis across the first two tranches of notes, and those perils plus severe weather and wildfires from a third annual aggregate tranche of notes, with the covered area for all three being parts of the US, Canada and the Caribbean.

A Class A tranche of notes will provide $125 million of indemnity per-occurrence reinsurance, with an initial expected loss of 1.41%. They were first offered with spread price guidance in a range from 4.5% to 5%, which was first lowered to an updated range of between 4% and 4.5%, and then fixed to pay investors a 4% spread, which is where sources tell us they have now been priced.

A Class B tranche will provide $100 million of indemnity per-occurrence reinsurance cover, with an initial expected loss of 5.16%. They were first offered with spread price guidance in a range from 11% to 11.75%, which first fell to a revised range of 10.5% to 11%, but then saw the guidance reduced again and tightened to 10.25% to 10.5% and have now been priced at the lowest-end for a 10.25% risk interest spread to be paid, we understand.

The last Class C tranche of notes will provide Liberty Mutual with $100 million of indemnity annual aggregate reinsurance protection. They come with an initial expected loss of 4.06% and were first offered with spread price guidance in a range from 13.5% to 14.5%, which was then fixed at 14% and we’re now told this is where the risk interest spread was priced for this aggregate layer.

As we’ve said, this is the first aggregate cat bond tranche to have been sponsored by Liberty Mutual.

It’s a further indication of the ability of the cat bond market to service the aggregate reinsurance protection needs of major insurers, if the structure and terms are right.

As we reported recently, there is growing evidence that investor appetite for aggregate notes has increased somewhat, albeit only on appropriate terms.

View details of every catastrophe bond sponsored by Liberty Mutual in our Deal Directory, where you can filter the results by trigger type and other features.

You can read all about this Mystic Re IV Ltd. (Series 2025-1) catastrophe bond from Liberty Mutual and every other cat bond issued in the Artemis Deal Directory.