Swiss Re has successfully completed its latest catastrophe bond transaction, the Matterhorn Re Ltd. (Series 2025-3), significantly increasing the protection secured and achieving highly competitive pricing. The offering, designed to provide retrocessional reinsurance coverage for North American earthquake risks, saw its size grow by a third to $100 million, while spreads for both tranches of notes landed at the most favorable end of their adjusted ranges. This outcome underscores robust investor appetite for catastrophe bonds and the attractive nature of diversifying perils within the market.
Swiss Re initiated its fourteenth issuance under the Bermuda-based Matterhorn Re program in late August, marking its third catastrophe bond sponsorship for 2025. The initial goal for this transaction was to obtain $75 million in retrocessional reinsurance protection specifically for North American earthquake events. The structure involved two distinct tranches of notes, Class A and Class B, each designed to appeal to different risk appetites among investors.
As the placement process unfolded, market feedback indicated strong interest. Initially, the target size remained at $75 million, but the pricing guidance for both tranches of notes was notably reduced, signaling a competitive environment among investors. This positive response prompted Swiss Re to increase the offering by one-third, elevating the total protection sought to $100 million. Concurrently, the final pricing for both tranches was locked in at the lowest points within their revised guidance, a testament to the strong demand and favorable market conditions.
The Matterhorn Re Ltd. (Series 2025-3) bond will now furnish Swiss Re with $100 million in retrocessional reinsurance, covering losses stemming from North American earthquakes. This protection operates on an annual aggregate basis, utilizing a weighted PCS industry loss index trigger, and extends across the United States (excluding Hawaii), Washington D.C., and Canada over a three-year period. The Class A notes, originally targeting $50 million, expanded to $60 million, while the Class B tranche increased from $25 million to $40 million, reflecting the strong investor interest.
The Class A notes, with an initial expected loss of 0.97%, were first offered with a price guidance range of 2.75% to 3.75%. This guidance was subsequently narrowed to 2.5% to 2.75% and ultimately settled at the lower end, 2.5%. This reduction signifies approximately a 23% decrease from the midpoint of the initial guidance. The Class B notes, carrying a higher risk profile with an initial expected loss of 2%, initially had a price guidance of 4% to 4.5%. This also saw a reduction to 3.75% to 4%, eventually being finalized at the lowest point of 3.75%, representing about a 12% drop from their initial guidance midpoint.
The successful outcome for Swiss Re, securing increased retrocessional earthquake reinsurance at such attractive pricing, underscores the robust demand from investors for new instruments in the catastrophe bond market. This phenomenon is particularly notable for earthquake perils, which often feature thinner multiples-at-market compared to other catastrophe risks. This strong investor interest suggests a positive outlook for sponsors of diversifying catastrophe bond deals, especially those focusing on non-hurricane perils, who may consider entering the market during the remainder of the US wind season.
