UnipolSai tries again with €100 million Azzurro Re II 2024 earthquake cat bond

Italian primary insurer UnipolSai Assicurazioni SpA has returned to the catastrophe bond market and is seeking €100 million in earthquake reinsurance protection through the Azzurro Re II DAC cat bond issue (Series 2024-1), Artemis has learned. This new cat bond will be the fifth bond listed in our comprehensive deal directory to be sponsored by UnipolSai.

The last time UnipolSai was in the catastrophe bond market was in 2022, when the company attempted to secure a similar €100 million tranche of collateralized reinsurance through the Azzurro Re II 2022-1 earthquake bond.

However, after being in the market with this deal for several weeks through April and into May 2022, it eventually became clear that its issuance had been cancelled, due to conditions in the ILS market and broader capital markets, as well as the impact of that deal. It was on the appetite of investors.

Around that time, the cat bond market saw a significant widening of spreads and investors became very selective about the cat bond trades they backed.

Not all new cat bond deals proposed at the time went away, and UnipolSai's 2022 cat bond was one of those that did, and so the company elected to halt this issuance, with a plan to return to the cat bond market once conditions stabilize and capacity increases. It was available.

Now, with catastrophe bonds and broader capital market conditions much more conducive to strong execution, UnipolSai is back to issue an Azzurro Re II 2024-1 that is only slightly changed, we understand.

The Irish designated activity company Azzurro Re II DAC will issue a single tranche of catastrophe bond notes which will be offered for sale to investors and the proceeds of this sale will be used to secure an earthquake reinsurance agreement between the issuing company and UnipolSai.

The target size for this Series 2024-1 issuance is €100 million and we recognize that the volume is unlikely to increase beyond this, as the coverage of the Azzurro Re II 2024-1 bonds will span a €100 million layer of UnipolSai's reinsurance tower.

The earthquake reinsurance protection these new cat bonds will provide closely resembles the previously successful 2020 issuance and stalled 2022 deal structure.

The reinsurance cover will be on an indemnity and per-event basis, covering claims relating to earthquakes affecting Italy and neighboring countries, but with the covered business and therefore exposure base predominantly within UnipolSai's home country of Italy.

We're told the coverage term will be over four years, with the due date scheduled for early April 2028.

The targeted issuance of EUR 100 million of Azzurro Re II DAC's Series 2024-1 Class A notes will cover the EUR 100 million layer of UnipolSai's reinsurance tower, with EUR 250 million of losses attached and EUR 350 million exhausted, we understand.

Sources tell us the 201-24 bonds will have an initial PE of 3.02%, an expected initial loss of 2.46%, and are being offered to cat bond investors with coupon guidance in a range of 5.75% to 6.5%.

For comparison, the 2020 Azzurro Re II bond had an expected loss of 1.84%, so was slightly riskier, and was ultimately priced to provide investors with a 4.5% coupon on issuance, while the unsuccessful 2022 issue had an expected loss of 1.5% and was offered With a price guidance of 2.5% to 3%.

On a market multiple basis, 2024 cat bond pricing looks close to the 2020 deal, but higher than the multiple offered in 2022.

It is good to see UnipolSai back in the catastrophe bond market, demonstrating that the insurer continues to see capital markets as a key source of diversifying peak catastrophe risk reinsurance protection for its business.

You can read all about the Catastrophe Bonds Azzurro Re II DAC (Series 2024-1) from UnipolSai and every other Cat Bonds deal in our comprehensive Artemis Deals Guide.

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