Lumen Re, the main reinsurance underwriting entity of LGT ILS Partners, has now successfully priced its debut Photon Re Ltd. (Series 2026-1) catastrophe bond issuance below guidance, securing $175 million in retrocessional protection against losses from North American peak perils, Artemis can report.
It marked the entry of another insurance-linked securities investment manager linked vehicle to the catastrophe bond market, the latest to seek peak peril hedging capacity from the capital markets.
Lumen Re, a Bermuda based reinsurance company, is utilised by LGT ILS Partners as a platform for the majority of its direct reinsurance writings.
The rated structure effectively merges the advantages of both worlds for the ILS manager, providing a rated reinsurance company to front counterparties associated with the LGT ILS fund management operations, while simultaneously maintaining the fully-collateralized principle of ILS.
As we reported in our first update on this debut Photon Re catastrophe bond for Lumen Re, the target issuance size was raised to between $150 million and as much as $200 million of retrocessional protection, while the price guidance was lowered as the reinsurer sought strong price execution for the deal.
Now, we’re told by sources that Lumen Re has successfully finalised the deal, pricing both tranches of notes below their initial guidance while securing $175 million of fully-collateralized retrocession from the capital markets through this issuance.
Once settled, this Photon Re Series 2026-1 catastrophe bond issuance will provide Lumen Re with retrocessional protection for its underwriting portfolio from the capital markets, the latest example of a specialist ILS investment manager structure benefiting from hedging protection for the risks that underpin its range of managed ILS funds.
With the notes now priced it is confirmed that the two tranches of Photon Re Series 2026-1 cat bond notes will provide Lumen Re with a $175 million multi-year source of fully-collateralized retro reinsurance protection against the peak North American perils of named storms and earthquakes, on an industry loss trigger and annual aggregate basis over a four year term to the end of February 2030.
What began as a $75 million tranche of Class A notes were later targeted at between $100 million and $125 million, and we are now told this tranche has been finalised at the upper-end to provide Lumen Re $125 million of protection.
The Class A notes will provide Lumen Re with annual aggregate industry-loss based protection against named storm events affecting US north-east states, as well as earthquake events affecting the US and Canada.
The Class A notes come with an initial base expected loss of 4.34% and were first offered to cat bond investors with price guidance of 8.5% to 9%, which was updated to between 8% to 8.5%. We’re now told the final pricing was at the low-end, for a risk interest spread of 8% to be paid.
What was at first a $50 million tranche of Class B notes were updated to target between $50 million and $75 million, but were finalised at the initial $50 million, we are told.
The Class B notes will provide Lumen Re with annual aggregate industry-loss based protection against named storm and earthquake events covering the entirety of the US and Canada
The Class B tranche of notes come with an initial base expected loss of 4.8% and were first offered to cat bond investors with price guidance of 9.25% to 10%, which also dropped to an updated range of 8.75% to 9.25%. We’re now told final pricing for this tranche was at the low-end as well, for a risk interest spread of 8.75% to be paid to investors.
As a result, once the issuance of these Series 2026-1 notes from Photon Re Ltd. are settled, Lumen Re will benefit from $175 million of peak North American catastrophe peril retrocession on a multi-year basis and secured at below-guidance pricing.
Once again this demonstrates the efficiency of the cat bond market and its attractive price execution at this time, enabling another ILS manager linked underwriting vehicle to obtain effective hedging capacity that will provide protection to its portfolios on the occurrence of major industry loss events.
As the ILS community has grown its assets under management hedging can become increasingly important, although it is often a price sensitive activity.
Industry-loss warranties (ILW’s) have often been the instrument of choice in the past, but in recent months the catastrophe bond structured with an industry-loss trigger has been increasingly seen as a price competitive way to lock-in multi-year hedging by ILS managers, with this Photon Re deal being another example of that.
These are prudent moves, securing protection at a time when rates are more accommodating in a market that could see rates suddenly move higher with any major loss events that occur. The window to access such opportunities may not last for long, therefore, so sophisticated managers are moving quickly to lock-in the benefits of a competitive cat bond market that is firing on all cylinders still.
As a reminder, you can read all about this new Photon Re Ltd. (Series 2026-1) catastrophe bond and over 1,000 other cat bond transactions in our extensive Artemis Deal Directory.
