Hannover Re has announced the launch of its seventh annual parametric US earthquake catastrophe bond issuance, which targets a total of $200 million for the Acorn Re Ltd. (Series 2026-1) transaction, according to industry sources.
Bond Structure and Issuance Details
The new catastrophe bond, similar to its six predecessors, is structured through a special purpose insurer and provides reinsurance protection to a single named ceding insurer, Oak Tree Assurance Ltd. This Vermont-based workers compensation captive is tied to the Kaiser Permanente health plan companies. Hannover Re acts as the ceding reinsurance company, offering additional protection to cover other reinsurance deals it has entered into in the subject area.
Acorn Re Ltd., headquartered in Bermuda, is offering a single Series 2026-1 Class A tranche of cat bond notes with the initial offering size of $200 million. Proceeds from the sale of these notes will be used to collateralize retrocessional reinsurance agreements between Acorn Re and Hannover Re. In turn, the reinsurer enters into reinsurance agreements with Kaiser Permanente via Oak Tree Assurance.
Coverage Scope and Parametric Design
The parametric earthquake catastrophe bond focuses on US west-coast regions, primarily California, with coverage extending to Oregon, Washington, Nevada, Utah, Arizona, British Columbia in Canada, Baja California, Sonora in Mexico, and certain offshore Pacific areas. California accounts for approximately 72% of expected loss exposure, with the San Andreas fault system—across its north, south, and central branches—contributing more than half of the projected losses.
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The parametric trigger employs a sliding scale payout structure, allowing varying payout percentages based on the magnitude and location of earthquake events. A minimum payout of 25% is guaranteed if triggered.
Pricing and Risk Metrics
The $200 million tranche of Acorn Re 2026-1 Class A notes features an initial attachment probability of 0.96%, an expected loss of 0.78%, and is priced with a risk interest spread between 2% and 2.25%. This pricing structure compares to the 2025-1 issuance, which had an expected loss of 0.96% and a spread of 2.35%. Investors in the new notes trade them at a multiple of 2.72 times expected loss at the midpoint of the price guidance, versus 2.45 times for the prior year.
Program Growth and Historical Context
This marks the fourth consecutive year Acorn Re parametric earthquake cat bonds have been issued, establishing the deal as an annual feature during the risk period. All seven transactions to date have provided coverage to Oak Tree Assurance, reinforcing the program’s consistency. The $150 million Acorn Re 2023-1 catastrophe bond is scheduled for maturity this November and so it is encouraging to see this new 2026-1 cat bond coming out larger with a $200 million target, as it shows the desire of the cedents to keep growing this parametric reinsurance program.
