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Recent spread widening on index-based cat bond deals led Ariel Re to pull its latest Titania issuance, sources confirmed to this publication.
Pricing had gone above the 800-900 basis points (bps) guidance range the sponsor was initially offering and it therefore decided it was no longer feasible to continue with the issuance.
Market sources have speculated on the driving force behind the spread widening on index deals, with there being two prevailing theories.
One theory is that the RMS v23 model update has had a greater impact on cat bond pricing than was initially anticipated.
In particular, the vulnerability component of the model that uses prior claims data to predict future losses is driving higher expected losses on PCS industry index-based deals.
However, other sources suggest the significance of the model update is being overplayed.
Instead, these sources suggest that simple supply-and-demand dynamics are impacting index-based bonds.
Two new deals entered the market in the last week, Windmill III Re and Mona Lisa Re.
Mona Lisa Re 2024-1 is an index-based deal, although it is offering a higher multiple than Titania had been, with a guidance insurance coupon of 1,050-1,150bps.
The bond is structured the same as Scor’s Atlas Re deal in terms of perils, with pricing on Atlas Re settling 9% above guidance at 1,250bps.
Mona Lisa Re will provide named US wind coverage in all 50 US states, the District of Columbia, Puerto Rico, and the US Virgin Islands.
The bond will also provide US and Canada quake coverage in all areas mentioned above, as well as all provinces and territories in Canada.
Ariel Re said that it has a consistent strategy of accessing a broad range of cover from long-term retro partners.
“Ariel Re remains a committed supporter of cat bonds, as evidenced by the three outstanding Titania Re issuances,” a spokesperson said.