Private cat bond
A smaller catastrophe note issued on light documentation, placed with a few investors and not traded.
A private cat bond, often called a cat bond lite, keeps the architecture of the classic catastrophe note (dedicated vehicle, full collateral) but uses standardized, light documentation: no full offering circular, no rating. It is placed with a small number of investors who hold it to maturity. It solves an access problem. The fixed costs of a public issue effectively rule out deals below a hundred million or so, which kept mid-sized cedants, niche perils and experimental structures out of the capital markets. The private format lowers that threshold to a few tens of millions and cuts execution time from months to weeks. The trade-off is no liquidity and less transparency: what it saves in fees, it pays back in spread. It often serves as a test bench. A cedant tries a new structure or peril there and, if it works, takes it to the public market.
A regional mutual issues a 28 million euro private note on hail risk in 2026, a structure no public investor would have analyzed at that size. The spread comes out at 8.9 percent for an expected loss of 2.2 percent, a multiple of 4, against about 3.1 for a comparable public format. Two years later, the structure has proved itself and moves to 144A for 120 million.
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