Covéa lifts Hexagon IV Re target to €145m, but price rises & issuance timing slips


French mutual insurer Covéa Group has lifted the target size for its latest catastrophe bond, now seeking €145 million in collateralized windstorm reinsurance from this Hexagon IV Re Ltd. (Series 2023-1) issuance, but the pricing has risen, most significantly for the riskier tranche of notes that are on offer.

As well as seeing the price guidance rise on the back of investor feedback and appetite for this cat bond, the issuance timeline has pushed out by just over one week, which typically happens when it is taking time to solve for a final price that delivers the protection required, at a spread investors are willing to take on the risk at.

As we reported at the time, Covéa Group returned to the catastrophe bond market at the mid-point of October, seeking €100 million or more in fully-collateralized windstorm reinsurance protection from the capital markets with this Hexagon IV Re cat bond.

Now, the target size has increased, but the pricing has too, as investors continue to demand a spread they deem risk commensurate be paid.

The Hexagon Re IV 2023-1 cat bond provides will cover Covéa and its mutual insurers against losses from windstorms affecting France, Monaco and Andorra, on an indemnity and per-occurrence basis, across four calendar years from January 1st 2024 to the end of 2027.

What was a €100 million Class A tranche of notes have now been upsized to €125 million, we understand.

With the Class notes having an initial expected loss of 4.35%, they were at first offered with price guidance for a spread of between 8% and 8.75%, but we’re now told this has been fixed at 8.5%, so above the mid-point of initial guidance.

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The Class B tranche of notes were unsized at first, but we’re told are now targeted at €25 million in size.

They will sit beneath the A’s, being riskier, with an initial expected loss of 8.08% and were first offered with price guidance for a spread of between 14.75% and 15.75%, but we’re now told this layers pricing has risen considerably to 16.5%.

It’s actually quite rare for a tranche of cat bond notes to price so far above their guidance, suggesting the notes missed the mark when it came to satisfying investors demands for what they believe to be a risk commensurate return.

Despite the up-tick in pricing, it’s encouraging to see Covea persisting with the issuance and it also perhaps sends a signal for European peak peril coverage for the end of year reinsurance renewals, that prices could be a bit higher than brokers and cedents anticipate.

You can read all about this new Hexagon IV Re Ltd. (Series 2023-1) catastrophe bond from Covea Group and every other cat bond transaction in our Deal Directory.

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