Price guidance narrows towards upper-end for Zenkyoren’s latest cat bond

In a relatively rare occurrence for the catastrophe bond market today, the price guidance for the latest cat bond issuance for Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives, the $150 million Nakama Re Pte. Ltd. (Series 2024-1), has narrowed towards the upper-end of guidance.

Investors are clearly making their minimum return requirements apparent with this update to the deal’s pricing, as the very thin excess spreads drove a response that shows a need for a return on capital even for very remote and diversifying risk opportunities.

Zenkyoren returned to the catastrophe bond market in March aiming to secure $150 million or more in aggregate Japanese earthquake reinsurance protection from the capital markets.

Zenkyoren’s target is to secure Japanese earthquake reinsurance protection on a three-year aggregate, indemnity triggered basis, across a roughly five year term to end of March 2029, with three annual aggregate risk periods, each three-years in length, that overlap.

The targeted $150 million tranche of Class 1 notes come with an initial annualised expected loss of 0.79% and were initially offered with spread guidance of 2.25% to 2.5%.

Which doesn’t make for much in the way of excess spread from these cat bonds and Japanese quake has always priced this way. But the cat bond investor base still has minimum requirements, which have been made evident with a move to narrow that guidance towards the upper-end.

We’re now told the still $150 million of Nakama Re 2024-1 Japanese earthquake cat bond notes are being offered with updated price guidance of 2.35% to 2.5%.

It’s not a significant move and pricing could still settle just below the initial mid-point, but it does show that investors are not going to soften price for very low-yielding cat bond investment opportunities.

The risk spread needs to be seen as sufficient to cover expected losses and a margin and it is encouraging that, unlike almost all other cat bonds issued in recent weeks, this one is not going to price down to the bottom of the guidance initial range.

Zenkyoren is one of the largest catastrophe reinsurance buyers in the world and this new Nakama Re 2024-1 cat bond will be the fourteenth catastrophe bond directly sponsored by it.

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