Florida-headquartered U.S. insurance group American Strategic Insurance is pleased with the successful completion of its first catastrophe bond, the $200m Gator Re Ltd., and looks forward to developing its relationship with insurance linked investors.
The Gator Re catastrophe bond completed on Monday 10th March. With the successful completion of its first cat bond deal, American Strategic Insurance (ASI) now benefits from a $200m fully-collateralized source of reinsurance protection for losses from U.S. named storms and U.S. severe thunderstorm risks until the end of December 2016.
The protection ASI benefits from, due to the successful completion of the Gator Re cat bond, is on an indemnity basis. The transaction features a unique structure with two different layers of reinsurance protection both collateralized by the limit provided by one $200m tranche of cat bond notes.
The protection provided by Gator Re 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 of the sections share the $200m limit.
It’s an interesting way to get a broader level of protection into a catastrophe bond while issuing only a single tranche of notes, which perhaps helps to gain broader cover without adding too much additional structuring cost.
Trevor Hillier, Vice President of Finance at American Strategic Insurance, told Artemis; “We are excited for the issuance of our first catastrophe bond. The process of issuing the bond was interesting as the investors have a different mindset than traditional reinsurers.”
For first time cat bond sponsors the process can be daunting, ILS investors can show very different motivations for assuming risk to a traditional reinsurance firm, but American Strategic Insurance is delighted with the success of its first transaction and the protection it provides.
Hillier continued; “The bond also adds a new level of protection for our companies. Gator Re not only provides coverage for a major hurricane, it also provides aggregate severe thunderstorm coverage that will help preserve our capital and surplus in the event of a hyperactive season.”
Not only is the cover provided by Gator Re broad, but the deal also grew in size considerably while marketing showing that insurance linked securities (ILS) investors were happy to support a new sponsor in its first deal, even with the less common structure.
When the Gator Re cat bond was launched to the market it was marketed with a preliminary size of $125m but grew in size by 60% to close at $200m. The pricing on the transaction dropped while the notes were marketed to investors, demonstrating the strong demand for new ILS issuance, with the coupon reduced from a guide range of 7% to 7.75% down to 6.5% to 7% and finally settling at 6.5%, representing a a 12% reduction in pricing from the mid-point of the originally marketed range.
American Strategic Insurance clearly sees the capital markets as a new partner for its reinsurance program and, like many other recent first-time cat bond sponsors, would be expected to use this first deal as a platform from which to expand its use of capital markets backed collateralized reinsurance protection.
Hillier commented; “We are looking forward to developing long-term relationships with the investors as they become more familiar with ASI.”
It’s important for sponsors to approach the capital markets in such a way, with the view of building long-term relationships just as they would seek to with a new traditional reinsurer that participates in their reinsurance program. ILS investors are increasingly seeking to build these relationships as well, to improve their understanding of a cedent and be able to provide better service and pricing. ASI has clearly entered the cat bond space with the right motivations
Willis Capital Markets & Advisory (WCMA) acted as the sole structuring agent and bookrunner for the Gator Re cat bond transaction and must also be pleased with the success of this bond. The innovative structure, upsizing and very keen pricing are all testament to a well structured cat bond and a well-managed book of orders.
The Gator Re Ltd. principal-at-risk variable rate note program and the $200m Series 2014-1 tranche of catastrophe bond notes have been admitted for listing on the Bermuda Stock Exchange.
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