Sompo Japan, the Japanese insurance arm of Sompo Holdings, has now successfully secured the targeted $150 million in reinsurance protection against Japanese typhoon and flood loss events from its new Sakura Re Ltd. (Series 2025-1) catastrophe bond issuance, Artemis can report.
We understand that while this cat bond did not upsize the protection offered, its pricing was eventually finalised at the low-end of initial guidance, indicating attractive execution for the Japanese sponsor.In the first week of March we reported that Sompo Japan was back in the catastrophe bond market for the first time since 2021, when it secured $400 million of reinsurance for Japanese typhoon, Japanese flood and US earthquake events with a Sakura Re 2021-1 catastrophe bond which matures next month.
That was the first Sakura Re cat bond, but the Sompo International division of the Japanese company had also sponsored a Sakura Re 2022-1 issuance in December 2022, that secured that underwriting arm $150 million of industry-loss trigger based US and Canada named storm and earthquake reinsurance protection.
So it’s encouraging to see Sompo Japan continuing to secure catastrophe bond coverage, to largely replace the first-event typhoon and flood coverage from the soon to mature Sakura 2021-1 deal.
Given the size of Sompo Japan’s reinsurance needs though, it is perhaps a little disappointing we still only see the cat bond market providing a very small amount of its overall protection. But, this also reflects the fact the spreads on offer from Japanese remote-risk diversifiers are so thin, that cat bond investor appetite may not be as high for these deals given the spreads available elsewhere in the world, while traditional reinsurance limit for Japanese catastrophe towers remains very keenly priced as well.
Diversifiers, such as this, are still welcomed though, even with very thin spreads, as many cat bond funds need diversifying paper for their portfolio strategies and at times it can be very limited in the market.
So, it is now confirmed that Bermuda based special purpose insurer Sakura Re Ltd. will issue a single $150 million tranche of Series 2025-1 Class A notes.
This $150 million Sakura Re cat bond will provide Sompo Japan Insurance and affiliates with four years of reinsurance protection against losses from Japanese typhoon and Japanese flood events on an indemnity trigger and per-occurrence basis, from April 1st.
The $150 million of notes will cover a share of losses across a roughly US $650 million layer of Sompo Japan’s reinsurance tower, attaching their coverage at JPY 500 billion of losses and exhausting at JPY 600 billion.
The $150 million of Sakura Re 2025-1 Class A notes have an initial expected loss of 1.58% and were first offered to cat bond investors with price guidance in a range from 2.75% to 3%.
We’re now told that the pricing has been finalised at the low-end of that guidance, for a spread of 2.75% to be paid to investors.
It’s hard to compare these notes with the Class A tranche of the 2021 issuance that provided first-event wind and flood cover in Japan. Those notes priced with a multiple-at-market of roughly 2.2 times the expected loss, but also covered second-event quake in the US as well.
These new Sakura Re 2025-1 cat bond notes have a multiple-at-market of only 1.7 times the expected loss, which is not the smallest multiple ever seen for Japanese typhoon and flood perils, but certainly low compared to the other catastrophe bonds available in the market recently.
You can read all about this new Sakura Re Ltd. (Series 2025-1) catastrophe bond and every other cat bond ever issued in the Artemis Deal Directory.
