New $400m Acorn Re parametric US quake cat bond offered with two tranches

There is a new parametric earthquake catastrophe bond transaction in the market, the fifth in the series of Acorn Re deals. But for the first time this $400 million Acorn Re Ltd. (Series 2024-1) issuance features two tranches of notes, each with a different duration of coverage, Artemis has learned.

As with the previous four Acorn Re parametric catastrophe bonds, this new issuance is being brought to market by Hannover Re, acting as the ceding reinsurance company, sitting in front of and providing protection to a single named ceding insurer, Oak Tree Assurance Ltd.

Oak Tree Assurance is the Vermont-based workers compensation captive insurer that is owned by the Kaiser Permanente group of health plan companies.

As with the previous deals, this Acorn Re deal is a U.S. west-coast focused parametric earthquake catastrophe bond, ultimately providing reinsurance coverage to the Kaiser Permanente workers compensation captive, covering its insured exposure to earthquake risks across that region (largely centred on California).

We assume that, like the previous Acorn Re’s, this latest issuance may also provide some additional protection to other Hannover Re reinsureds, that have exposure within the parametric earthquake boxes as well should a major quake event occur.

Acorn Re Ltd. is seeking to issue two tranches of notes, each currently sized at $200 million.

A Class A tranche of notes would provide coverage over a three-year term, while a Class B just over a single year.

It’s possible the strategy here is to further stagger the coverage that the Acorn Re series of cat bonds provides. The last Acorn Re issuance, in 2023, was the first time a new deal was brought to market prior to maturity of the previous issuance as the beneficiaries of the coverage looked to begin staggering their cat bond maturities, it seemed. This may be a further reflection of this desire.

Both tranches of notes will be sold to cat bond investors and the proceeds used to collateralize underlying retrocessional reinsurance agreements between Acorn Re and Hannover Re. Hannover Re in turn then enters into reinsurance agreements with the Kaiser Permanente captive, Oak Tree Assurance, while also with some of Hannover Re’s other reinsureds that have exposure in the parametric box, we understand.

The two tranches of Acorn Re 2024-1 cat bond notes will provide the covered parties, Kaiser Permanente via the Oak Tree Assurance Ltd. workers compensation captive and the other reinsureds of Hannover Re, with a multi-year source of per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region, backed by the capital markets.

Once again, the majority of the exposure underpinning the cat bond will be California based, while the covered region appears the same west-coast US spread, so covering events that occur in the surrounding states of Oregon, Washington, Nevada, Utah, Idaho, Arizona, British Columbia in Canada, as well as Baja California and Sonora states in Mexico and some offshore areas of the Pacific.

As with previous deals as well, a sliding scale of payouts is again used for the parametric trigger, so different payout percentages are possible dependent on the magnitude and location of earthquake loss events, starting from a 25% payout as a minimum, we are told.

The $200 million Acorn Re 2024-1 Class A tranche of notes will provide protection across a three-year term, we understand, while the $200 million Acorn Re 2024-1 Class B tranche will provide coverage for just a single year.

Both tranches of notes feature exactly the same risk metrics and pricing, with an initial attachment probability of 1.23%, an initial expected loss of 0.88% and price guidance in a range from 3.5% to 4.1%, sources said.

Which is tighter pricing than the 2023 Acorn Re issuance, but wider than the 2021 Acorn Re deal.

It’s good to see another parametric US earthquake catastrophe bond from the Acorn Re series coming to market. The larger size and dual-tranche approach, with different maturities, does seem to underscore the desire to continue making this a core coverage, with longer-term benefits for the ceding entities involved, both Hannover Re itself and the workers comp captive of Kaiser Permanente.

You read all about this new Acorn Re Ltd. (Series 2024-1) transaction and every other catastrophe bond in the Artemis Deal Directory.