Pool Re, the UK government-backed mutual terrorism reinsurance facility, has now successfully secured its targeted UK £100 million of retrocessional protection from its third terrorism catastrophe bond, as the new Baltic PCC Limited (Series 2025-1) issuance has now been priced for the reinsurer.
The notes have now been priced at a level close to the upper-end of initial guidance and will pay investors a multiple of expected loss that is slightly higher than seen with Pool Re’s previous two terrorism cat bond deals.Pool Re ventured back to the catastrophe bond market as had been anticipated earlier this month, with its third deal seeking UK £100 million or more in protection from a second renewal of its landmark Baltic PCC terror catastrophe bond.
As we then reported in our first update on this cat bond, the size target had not changed, but the price guidance had been adjusted into the upper-half of the initial range.
Now, we’ve learned from sources that Pool Re’s third cat bond has been successfully priced, to provide the targeted terrorism retrocession at the slightly higher pricing level.
Pool Re had upsized its traditional retro reinsurance program to £2.75 billion at the latest renewal in recent weeks, which was a response to recent changes made to the company’s retrocession agreement with the UK’s HM Treasury that meant it required additional private market protection.
This hasn’t translated into a greater appetite for catastrophe bond cover unfortunately, with this new Baltic PCC 2025-1 cat bond coming in at the same size as its recently matured Baltic PCC Limited (Series 2022-1) deal.
The now confirmed as £100 million of Baltic PCC 2025-1 cat bond notes will offer Pool Re three years of terrorism retrocession on an indemnity trigger and annual aggregate basis, covering events in England, Scotland and Wales, but not Northern Ireland.
The cat bond coverage closely mirrors Pool Re’s traditional retro reinsurance program, covering commercial property losses caused by conventional terrorism attacks, plus nuclear, biological, chemical, or radiological attacks (NBCR), but not nuclear facility impacts themselves which are carved out, and also covers physical damage from cyber-triggered terrorist losses.
The UK £100 million tranche of Series 2025-1 notes that Baltic PCC Limited will now issue have an initial expected loss of 2.54%.
The notes were first offered to cat bond investors with initial price guidance in a range from 5.5% to 6%, which was then fixed in the upper-half of the range for a spread of 5.9% and this is where we’re now told the cat bond has been priced.
As a result, these Baltic PCC 2025-1 terror cat bond notes have been priced to pay investors a multiple-at-market of expected loss that equates to 2.32 times.
In comparison, the recently matured Baltic PCC Limited (Series 2022-1) cat bond issuance for Pool Re paid a multiple at launch of 2.31 times the expected loss, while the previous deal, Baltic PCC Limited (Series 2019), initially paid investors a multiple-at-market of 2.18 times the EL.
So the multiple-at-market is a little higher for this third Baltic PCC terrorism cat bond deal. But given the changes to Pool Re’s protection and now larger private market supplied retro tower, it’s a little challenging to compare as the exposure base will have changed somewhat.
It’s encouraging to see Pool Re continue to incorporate the cat bond market within its retrocession arrangements and while it’s perhaps a shame to see the deal didn’t grow this time around, given the greater retro needs of the UK’s terrorism reinsurer, it will now be interesting to see whether Pool Re returns more frequently to layer in multi-year cover from the capital markets.
You can read all about this second terrorism cat bond Baltic PCC Limited (Series 2025-1) and every other catastrophe bond transaction since the market began in the Artemis Deal Directory.
