The Hanover seeks second Commonwealth Re cat bond with $125m target

US primary insurer The Hanover Insurance Group, Inc. has returned to the catastrophe bond market for what will be its second time, seeking $125 million or more in US Northeast named storm reinsurance protection with this Commonwealth Re Ltd. (Series 2023-1) issuance.

The Hanover entered the catastrophe bond market about one year ago as a first-time sponsor, looking to add multi-year capital markets funding to its catastrophe reinsurance arrangements.

That successful first cat bond sponsorship secured The Hanover a $150 million source of US Northeast states named storm and hurricane reinsurance protection.

Now, the insurer has returned to further build-out the participation of the cat bond market within its reinsurance tower, we’re told.

Using the same Bermuda-based special purpose insurer named Commonwealth Re Ltd., The Hanover Insurance Group is seeking at least $125 million in Northeast US named storm reinsurance protection from the capital markets, on a multi-year and fully-collateralized basis with this second issuance.

Commonwealth Re Ltd. will issue a single tranche of Series 2023-1 Class A notes, designed to provide the sponsoring insurer with three years of reinsurance protection against Northeast US named storm losses, across the states of Connecticut, Delaware, DC, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont and Virginia.

We’re told the $125 million or more in Commonwealth Re 2023-1 cat bond notes will provide reinsurance to The Hanover on an indemnity and per-occurrence basis, over a three year term running to maturity at July 8th 2026.

The Class A notes will have an attachment point at $1.3 billion of losses and exhaust their coverage at $1.6 billion in the reinsurance tower, sources said.

Which gives the $125 million or more in Class A notes an initial attachment probability of 0.66%, an initial base expected loss of 0.57% and they are being offered to investors with spread price guidance in a range from 4% to 5%, we understand.

For comparison, the Commonwealth Re 2022-1 cat bond notes had an initial base expected loss of 0.54% and priced with a spread of 3.5%, so a multiple-at-market of nearly 6.5 times the EL.

These new Commonwealth Re 2023-1 cat bond notes would have a multiple-at-market of 8.77 times EL at the top of guidance, almost 7.9 times the EL at the mid-point and 7 times at the low-end of guidance, so clearly priced higher for marketing and it will be interesting to see where the pricing settles.

It’s good to see The Hanover back and becoming a repeat catastrophe bond sponsor.

You can read all about this Commonwealth Re Ltd. (Series 2023-1) catastrophe bond from The Hanover and every cat bond transaction ever issued in the extensive Artemis Deal Directory.