Gator Re catastrophe bond grows to $200m, price guidance down

by Artemis on March 3, 2014

First time catastrophe bond sponsor American Strategic Insurance Group is set to enjoy the attractive cat bond issuance and rate environment as its Gator Re Ltd. cat bond upsizes to $200m while price guidance was lowered to below the initial range.

The Gator Re cat bond sees Florida-based primary insurance group American Strategic Insurance embracing the capital markets with its first catastrophe bond issuance. The insurer is seeking a multi-year, fully-collateralized source of reinsurance protection from third-party ILS investors through the sale of a single tranche of Series 2014-1 cat bond notes.

With Gator Re American Strategic Insurance is looking for reinsurance protection on an indemnity trigger basis against losses from U.S. named storms and U.S. severe thunderstorm risks. Protection is split into two sections, with the first exposed to U.S. named storms and severe thunderstorms on a per occurrence basis and the second exposed to just severe thunderstorms on an annual aggregate basis. Both sections share the full limit of the Series 2014-1 notes.

The novel structure of this cat bond, with the two sections and types of cover blended into a single tranche of notes, will give American Strategic Insurance protection for major losses from named storms and thunderstorms, through the per-occurrence layer, as well as an accumulation of attritional thunderstorm losses across an annual risk period, through the aggregate layer.

When the Gator Re cat bond was launched to the ILS investor community the single tranche of notes was pitched with a preliminary size of $125m. Artemis understands that thanks to strong investor demand, as expected this cat bond has been oversubscribed at its initial size like almost every other, the Gator Re cat bond is now being pitched at $200m in size, a 60% upsizing.

At the same time, again as expected in the current cat bond issuance environment, the price guidance has been reduced for the deal. When it launched, Gator Re was being marketed with pricing guidance of 7% to 7.75% but this has now dropped to below that range and narrowed to guidance of 6.5% to 7%.

If the deal prices at the lower end of that reduced range, which based on all recent cat bonds is highly possible, then the drop in pricing American Strategic Insurance benefits from could be as high as 12% (from the mid-point of the original guidance range).

So the Gator Re cat bond looks like an extremely successful first trip to the capital markets for American Strategic Insurance, with the potential for it to secure 60% more reinsurance protection at as much as a 12% reduction in pricing.

Artemis understand that the Gator Re cat bonds risk period has also been clarified. The per-occurrence layer, understood to be referred to as Section A, risk period will run from 1st June 2014 to 31st December 2016, so providing reinsurance protection for three U.S. wind seasons. The Section B layers aggregate protection will run from the deals completion in March 2014 to 31st December 2016, so covering three U.S. severe thunderstorm seasons.

Final pricing for the Gator Re catastrophe bond is expected this week, with settlement next week. Artemis will update you as the deal comes to market.

Read all about the Gator Re Ltd. catastrophe bond and every other cat bond issued since the market began in the Artemis Deal Directory.

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