There’s a recent parametric earthquake catastrophe bond transaction on the market, the fifth throughout the series of Acorn Re deals. But for the first time this $400 million Acorn Re Ltd. (Series 2024-1) issuance features two tranches of notes, each with a special duration of coverage, Artemis has learned.

As with the previous 4 Acorn Re parametric catastrophe bonds, this recent issuance is being dropped at market by Hannover Re, acting since the ceding reinsurance company, sitting in front of and providing protection to a single named ceding insurer, Oak Tree Assurance Ltd.

Oak Tree Assurance is the Vermont-based employees compensation captive insurer that’s owned by the Kaiser Permanente group of health plan firms.

As with the previous deals, this Acorn Re deal is a U.S. west-coast focused parametric earthquake catastrophe bond, ultimately providing reinsurance coverage to the Kaiser Permanente employees compensation captive, covering its insured exposure to earthquake risks across that region (largely centred on California).

We assume that, similar to the previous Acorn Re’s, this latest issuance may additionally provide some additional protection to other Hannover Re reinsureds, which have exposure contained in the parametric earthquake boxes as well should a major quake event occur.

Acorn Re Ltd. is looking for to issue two tranches of notes, each currently sized at $200 million.

A Class A tranche of notes would offer coverage over a three-year term, while a Class B just over a single 12 months.

It’s possible the strategy here is to further stagger the coverage that the Acorn Re series of cat bonds provides. The last Acorn Re issuance, in 2023, was the first time a recent deal was dropped at market prior to maturity of the previous issuance since the beneficiaries of the coverage looked to begin staggering their cat bond maturities, it seemed. This can likely be an additional reflection of this desire.

Each tranches of notes will likely be sold to cat bond investors and the proceeds used to collateralize underlying retrocessional reinsurance agreements between Acorn Re and Hannover Re. Hannover Re in turn then enters into reinsurance agreements with the Kaiser Permanente captive, Oak Tree Assurance, while also with a number of of Hannover Re’s other reinsureds which have exposure throughout the parametric box, we understand.

The two tranches of Acorn Re 2024-1 cat bond notes will provide the covered parties, Kaiser Permanente via the Oak Tree Assurance Ltd. employees compensation captive and the other reinsureds of Hannover Re, with a multi-year source of per-occurrence parametric reinsurance protection against earthquakes that strike the U.S. west coast region, backed by the capital markets.

Over again, nearly the entire exposure underpinning the cat bond will likely be California based, while the covered region appears the similar west-coast US spread, so covering events that occur in the surrounding states of Oregon, Washington, Nevada, Utah, Idaho, Arizona, British Columbia in Canada, along with Baja California and Sonora states in Mexico and a number of offshore areas of the Pacific.

As with previous deals as well, a sliding scale of payouts is again used for the parametric trigger, so different payout percentages are possible depending on the magnitude and site of earthquake loss events, starting from a 25% payout a minimum of, we’re told.

The $200 million Acorn Re 2024-1 Class A tranche of notes will provide protection across a three-year term, we understand, while the $200 million Acorn Re 2024-1 Class B tranche will provide coverage for less than a single 12 months.

Each tranches of notes feature the very same risk metrics and pricing, with an initial attachment probability of 1.23%, an initial expected lack of 0.88% and price guidance in a range from 3.5% to 4.1%, sources said.

Which is tighter pricing than the 2023 Acorn Re issuance, but wider than the 2021 Acorn Re deal.

It’s good to see one other parametric US earthquake catastrophe bond from the Acorn Re series coming to market. The larger size and dual-tranche approach, with different maturities, does appear to underscore the desire to proceed making this a core coverage, with longer-term benefits for the ceding entities involved, each Hannover Re itself and the staff comp captive of Kaiser Permanente.

You read all about this recent Acorn Re Ltd. (Series 2024-1) transaction and one another catastrophe bond throughout the Artemis Deal Directory.