Palomar Insurance Holdings is back in the catastrophe bond market for what will become the sixth time and the initial targets size suggests this will also be the insurers largest cat bond to-date, as it is seeking $425 million or more in California earthquake reinsurance from this Torrey Pines Re Ltd. (Series 2025-1) issuance.
Last year, Palomar sponsored what was its largest catastrophe bond at the time, the $420 million Torrey Pines Re 2024-1.
Now, the insurer is back again just one year later with an initial target of $425 million and looking to make this the largest Torrey Pines Re catastrophe bond so far.
You can read about all of Palomar’s catastrophe bonds in our extensive Deal Directory.
As with all recent cat bonds sponsored by Palomar, this new Torrey Pines Re Series 2025-1 issuance will provide fully-collateralized reinsurance protection to both Palomar Specialty Insurance Company and Palomar Excess and Surplus Insurance Company, we are told.
Bermuda based special purpose insurer (SPI) Torrey Pines Re Ltd. is offering three tranches of Series 2025-1 catastrophe bond notes initially amounting to $425 million, that will be sold to investors and the proceeds used to collateralize reinsurance agreements to protect the Palomar underwriting entities on a multi-year basis.
All three tranches of notes will give Palomar capital markets backed reinsurance protection against California earthquake losses, on an indemnity and per-occurrence basis, sources said.
The covered area can, like other recent Torrey Pines Re cat bonds, be expanded to include any additional states of Palomar’s choosing after the first reset, meaning the insurer has optionality should it expand its underwriting scope.
All three tranches of notes will provide Palomar with reinsurance across a three year term, to the start of June 2028, we understand.
A Series 2025-1 Class A tranche of notes are targeting $125 million in coverage for Palomar, attaching at $1.3 billion and exhausting coverage at $1.5 billion.
The Class A notes have an initial attachment probability of 1.33%, an initial expected loss of 1.22% and are being offered to investors with price guidance in a range from 3.5% to 4%, we are told.
A Series 2025-1 Class B tranche targets $175 million in coverage for Palomar, attaching lower down at $650 million and exhausting coverage at $1.3 billion.
The Class B notes have an initial attachment probability of 2.57%, an initial expected loss of 1.84% and are being offered to investors with price guidance in a range from 4.5% to 5%, sources said.
A final Series 2025-1 Class C tranche targets $125 million in coverage for Palomar, attaching lower down again at $325 million and exhausting coverage at $650 million.
The Class C notes have an initial attachment probability of 4.16%, an initial expected loss of 3.25% and are being offered to investors with price guidance in a range from 6.5% to 7%, we understand.
For comparison, on the price guidance, Palomar’s 2024 cat bond had a Class A tranche with an initial expected loss of 1.58% that priced at 6%, a Class B tranche with an initial expected loss of 2.34% that priced at 7.25%, and a Class C tranche with an initial expected loss of 3.32% that priced at 9%.
So pricing is considerably lower, on a multiple of EL basis, reflecting softening in the cat bond market but also the fact earthquake risks are a valuable diversifier for investors at a time of hurricane-heavy catastrophe bond issuance.
It’s encouraging to see Palomar continue to expand its appetite for catastrophe bond coverage in 2025, as the company continues to utilise cat bonds as a way to secure multi-year, single shot reinsurance that inures to the benefit of its core catastrophe excess-of-loss reinsurance tower.
The insurer’s $275 million Torrey Pines Re 2022-1 matures this year, so this new issuance will more than replace that, growing the capital markets role in the Palomar reinsurance tower.
You can read all about this Torrey Pines Re Ltd. (Series 2025-1) catastrophe bond and every deal issued since 1996 in the Artemis Deal Directory.
