Safepoint Insurance Company, an expansive insurer that began life as a Florida takeout player, is returning to the catastrophe bond market to add to its capital markets sourced reinsurance protection with a triple-tranche $100m Manatee Re Ltd. (Series 2016-1) deal.
This is Safepoint’s second visit to the catastrophe bond market, following on from its successful Manatee Re Ltd. (Series 2015-1) a year ago, but the 2016 issuance will see the covered area expand as Safepoint seeks to protect its growing business, sources explained.
Safepoint’s second catastrophe bond also sees the insurer using the Rewire Holdings team and its Rewireconnect platform for structuring and issuance, the latest sponsor to do so. There are signs emerging that Rewire is being looked on favourably by sponsors as a cost-efficient platform for catastrophe bond structuring, issuance and placement, perhaps allowing them to try out new coverage options more easily.
Safepoint’s appropriately Florida-themed Bermuda registered special purpose insurer Manatee Re Ltd. will be seeking to issue three tranches of Series 2016-1 cat bond notes to investors, in order to collateralize underlying reinsurance agreements.
The three tranches will provide the insurer with a targeted $100m, or greater, of reinsurance protection for the perils of Florida and Louisiana named storms. Last year’s Manatee Re cat bond was Florida wind only, as Safepoint has been expanding its business scope and now requires broader coverage.
The Manatee Re 2016-1 cat bond will provide its named storm reinsurance protection across a three-year term, to March 2019, with protection on a per-occurrence basis and using an indemnity trigger.
Safepoint is seeking protection across a number of layers of its reinsurance program with this Manatee Re 2016-1 cat bond, with the three tranches all having differing attachment points.
The Class A tranche, which has a preliminary size of $50m, attaches at $30m of losses above Safepoint’s FHCF participation reinsurance cover, and covers a $200m layer. That effectively means a $306m attachment point and $506m exhaustion point, we’re told.
The Class A tranche has an attachment probability of 1.92% and an expected loss of 0.98% at the base case. These notes are being marketed with price guidance of 4.75% to 5.5%.
The $30m Class B tranche sits alongside the FHCF reinsurance layer, so attaching at around $65m and providing pro-rate coverage up to $300m of losses in Safepoint’s tower. It’s possible that this tranche will enable Safepoint to reduce its use of FHCF coverage, as we’ve seen other Florida insurers do.
The Class B notes have an attachment probability of 7.61% and an expected loss of 3.05% at the base case, so much more risky than Class A. These notes are being offered to investors with coupon guidance of 7% to 7.75%.
Finally a $20m Class C tranche is even more risky, attaching at $30m of losses and covering a $35m layer up to $65m. As a result the attachment probability for Class C is high at 14.28%, while the base expected loss is 10.32%. This tranche is being marketed with pricing guidance of 15.25% to 16.25%, we’re told.
So there are three very different tranches available, in terms of risk and return levels, providing ILS and cat bond investors with options on where to support Safepoint’s reinsurance needs. All three tranches have room to upsize as well, so it will be interesting to see how the deal progresses.
The Manatee Re 2016-1 catastrophe bond has been structured by Rewire Holdings LLC and with the firms web-based marketplace, Rewireconnect, being used to market the notes. SDDCO Brokerage Advisors, LLC is bookrunner for this transaction. GC Securities is co-manager.
It’s good to see Safepoint return to expand its capital markets backed, fully collateralized reinsurance with another catastrophe bond and encouraging that it is looking to test ILS investor appetite for the three layers of its reinsurance program needs.
As sponsors become increasingly familiar with the cat bond structure and facilitators offer structures that reduce the friction of issuance, as we see with Rewire Holdings, it is to be hoped that not just the sponsor base grows, but also the levels and types of risk on offer in the cat bond market.
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