Prologis, Inc., the logistics, warehousing and supply-chain focused real estate owner and investor, is back in the catastrophe bond market for the second time, looking to sponsor a $95 million Logistics Re Ltd. (Series 2024-1) US earthquake focused issuance, as a renewal of its first cat bond.
Prologis ventured into the catastrophe bond market for the first time back in the fourth-quarter of 2021, as the company looked to secure property insurance protection from capital market investors through the insurance-linked securities (ILS) market for the first time.
That first venture into cat bonds saw Prologis securing $95 million of multi-year, earthquake focused property catastrophe insurance protection through the successful issuance of a Logistics Re Ltd. (Series 2021-1) cat bond.
Prologis operates as a real estate investment trust, both owning and investing in commercial real estate assets, typically linked to the warehousing, logistics and supply-chain sectors and with a United States focus, although it does have some global operations as well.
The first Logistics Re cat bond issued in 2021 is scheduled to mature in December of this year and so the company has now returned to sponsor a renewal, Artemis has learned.
Using the same special purpose insurer (SPI) named Logistics Re Ltd., that is based in Bermuda, Prologis is seeking to sponsor a second catastrophe bond to provide it with access to the capital markets for disaster insurance protection.
As with the first cat bond, we understand that again in this case the insurance protection will cascade down from the Logistics Re Ltd. SPI, via global reinsurance firm Hannover Re, through Prologis’ own captive insurer Solution Insurance Ltd. and on to the sponsor itself.
So, Logistics Re Ltd. will seek to issue a single $95 million Class A tranche of Series 2024-1 catastrophe bond notes that will be sold to cat bond investors and the proceeds used to collateralize retrocessional reinsurance agreements between the SPI issuer and Hannover Re.
Hannover Re will then provide reinsurance directly to the captive insurer, Solution Insurance Ltd. which will in turn insure Prologis, Inc.
The $95 million of Series 2024-1 Class A notes Logistics Re is issuing are designed to provide Prologis with a just over three-year source of US earthquake insurance protection on an indemnity and per-occurrence basis, with maturity slated for mid-December 2027, we’re told.
There may be some overlap in coverage between the two cat bonds then, as the 2021 issuance matures at that December point, but this new 2024 cat bond issuance is expected to settle in October.
As with the first Logistics Re catastrophe bond, we understand the exposure is largely focused on California, with assets covered there contributing as much as 95% of the expected loss, the same as the first deal.
The Logistics Re Series 2024-1 Class A notes will have an attachment point at $400 million of losses to Prologis’ insurance tower and cover a percentage of losses up to $550 million, sources said.
Which gives these new Logistic Re cat bond notes an initial attachment probability of 3.1%, an initial expected loss of 2.6% and we are told they are being offered to cat bond investors with spread price guidance in a range from 6.75% to 7.25%.
It appears there has been some change to the covered subject exposure, as the first Logistics Re cat bond had an attachment at $350 million of losses and ran to the same exhaustion point, but its expected loss was only 1.094% at issuance.
We understand the Logistics Re 2021-1 cat bond had its expected loss raised to 1.34% at the latest reset, so Prologis seems to have been building out exposure in asset terms in the covered region, likely largely in California given the expected loss concentration there.
It’s encouraging to see Prologis return looking to renew its catastrophe bond backed insurance protection and this should continue to grow awareness of the catastrophe bond as a risk transfer capital tool among large corporates, as well as owners or holders of catastrophe-exposed asset portfolios, which in time may serve to stimulate more of these kinds of sponsors to venture into the ILS market to source protection.
You can read all about the Logistics Re Ltd. (Series 2024-1) catastrophe bond and every other cat bond issuance in our extensive Artemis Deal Directory.
