NZ EQC on-track with debut $250m Totara Re cat bond issuance

The New Zealand Earthquake Commission, or Toka Tū Ake EQC, remains on-track to secure its debut slice of catastrophe bond backed reinsurance protection from the capital markets,  with the Totara Re Pte. Ltd. (Series 2023-1) issuance looking set to price at the upper-end of initial guidance, we understand.

Toka Tū Ake EQC, is New Zealand’s state-owned residential property disaster insurance entity and as we reported in February 2023, the Earthquake Commission (EQC) had sharpened its focus on catastrophe bonds of late, exploring the potential to add them to its reinsurance program.

The EQC renewed a record $7.2 billion reinsurance tower in June 2022, meaning there is plenty of scope for adding catastrophe bond coverage to it.

The NZ EQC entered the catastrophe bond market for its debut sponsorship back at the middle of April and while it had been quiet for a while, we’re told that an update on the Totara Re issuance shows it to be well on-track, with pricing now anticipated this week and settlement of the EQC’s first cat bond slated for the end of this month.

As we reported at the time, the NZ EQC’s debut catastrophe bond will be issued out of Singapore, with the insurer set to benefit from the Singapore ILS grant program, to help in lowering some of the frictional costs of this first deal.

We’re hosting our ILS Asia 2023 conference in Singapore on July 13th this year. Please register here to attend the event.

Totara Re Pte. Ltd., a Singapore domiciled special purpose reinsurance vehicle, is still set to issue a single tranche of Series 2023-1 Class A notes that will provide the NZ EQC with a four year source of collateralized reinsurance protection to the end of May 2027, structured on an indemnity and per-occurrence basis, covering certain losses from earthquake, tsunamis, landslide, volcanic eruption, hydrothermal, storm, and flood events.

The target issuance size at the launch of the Totara Re cat bond in April was NZ $250 million.

We’re now told that target is being presented as between NZ $225 million and NZ $250 million in the latest update so a slight chance it comes in a little smaller than the original target, but not a significant amount.

At the same time, we’re told that the notes that will come with an initial expected loss of 3.42% and were at first offered with price guidance in a range from 8% to 8.75%, are now being offered with fixed guidance at the top-end of 8.75%.

So this appears a healthy response from the cat bond investor community, to seek what they deem acceptable pricing for taking on what is a new risk, as a sole exposure, for the catastrophe bond market, in New Zealand earthquakes and related perils.

It’s encouraging to see the NZ EQC pushing forward to pricing the Totare Re catastrophe bond this week, with its initial target size still in sight and the cat bond set to price within the initial guardrails of price guidance, albeit at the upper-end.

The targeted issuance date has slipped by one week, but that is to be expected with a new sponsor and peril coming to market at a time when the issuance pipeline has been so busy.

So this is still a strong result in the offing for a first time sponsor, with its debut cat bond featuring an unfamiliar peril to cat bond funds and their investors.

You can read all about this new Totara Re Pte. Ltd. (Series 2023-1) catastrophe bond and every other cat bond issuance since the market began in our extensive Deal Directory.