The transaction provides cover against losses from European windstorm risks (which includes extratropical storms, convective storms, tornadoes, and other windstorm-related events), on an indemnity trigger and per-occurrence basis across a four-year term.
RMS acted as the modeling agent on the cat bond transaction, providing a view of the risk covered by the bond to ILS investors.
Based on RMS’ modeling, the notes being issued by Windmill II Re DAC have an initial expected loss of 2.56% and were launched to cat bond investors with coupon price guidance in a range from 4.25% to 4.75%.
Investor appetite for the notes was strong, and the bond eventually settled at a spread of 4.00%, i.e., below the lower end of the initial guidance range. In addition, the principal amount of the transaction was raised from the initial target of EUR 80m to EUR 100m. Bonds have recently priced at or above the upper end of initial the guidance, likely reflecting additional uncertainty and hesitance of investors during the COVID-19 outbreak.
This recent hardening of the ILS market can be clearly seen when comparing spread multiples – i.e., the ratio of the risk interest spread investors receive to the modeled risk of the transaction – seen to date in 2020 against recent years. An RMS analysis of spread multiples of public cat bonds issued since the start of 2018 shows that, on average, spreads for transactions in 2020 have been notably higher than in the two previous years.
Ewoud Bom, managing director of Achmea Reinsurance stated: “We chose to return to the ILS market with the Windmill II Re issuance under the 144A rule to further diversify our access to reinsurance capacity worldwide and to broaden our relationships with capital market investors. We are very pleased with the reception this new issuance has received from investors, which confirms the mutual benefit of our strategy to transfer part of our risk to the capital market that we started in 2013 with our first cat bond issuance.”
Jin Shah, Client Director, RMS, said: “Investors have welcomed Achmea as a new sponsor to the market, valuing the diversifying nature of Europe windstorm risk, and investors have shown confidence in the modeling analysis provided by RMS. It’s always an enjoyable experience working with new issuers and I’m glad to see excellent execution in these uncertain times. It’s great to see the ILS market remains an ample source of capacity at competitive pricing for re/insurance coverage.”
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