$178m Integrity Re cat bond being issued by Hannover Re for American Integrity

by Artemis on March 27, 2017

Floridian primary insurance group American Integrity Insurance Company of Florida, Inc. is set to benefit from its first catastrophe bond, as a $178 million Integrity Re Ltd. (Series 2017-1) transaction is launched with Hannover Re acting as ceding reinsurance firm.

American Integrity is entering the catastrophe bond market with the help of Hannover Re, with Hannover Rück SE acting as the ceding reinsurer, while American Integrity is the reinsured and so beneficiary of the fully-collateralized protection that the Integrity Re 2017-1 cat bond will provide, we understand from sources.

The target is a multi-year source of reinsurance protection against Florida named storms and severe thunderstorms, across a three year term and with capital markets cover afforded on an indemnity and per-occurrence basis.

Bermuda based special purpose insurer Integrity Re Ltd. will offer four tranches of Series 2017-1, with two set to provide first event protection and two second event cover only.

The Integrity Re 2017-1 cat bond is targeting $178 million of notes across the four tranches, but there is room to upsize should the sponsor elect to and market conditions allow.

Hannover Re will enter into a reinsurance agreement with Integrity Re, with the sale of the notes collateralizing this agreement, while American Integrity will be reinsured by Hannover Re. The covered subject business is Florida homeowners insurance policies, we’re told.

A Class A tranche of notes is offered at $50 million in size and will provide second event protection against loss from Florida named storms only. This tranche will attach at $3 million of losses for the second event, $1 million for subsequent events.

The Class A tranche has an attachment probability of 2.64%, an expected loss of 0.73% and the notes are being offered to investors with coupon price guidance of 3.5% to 4%.

The Class B tranche is just $3 million in size, will cover Florida named storms in a second and subsequent event basis, attach at $3 million for a second event and $1 million for a subsequent event, like Class A.

The Class B notes have an attachment probability of 10.41%, an expected loss of 9.84% and are offered to ILS investors with coupon guidance of 13.75% to 14.5%.

A Class C tranche is the largest at $100 million, and will cover Florida named storms for first and subsequent events, with an attachment point of $6 million for th first event, $3 million for the second and $1 million for subsequent events.

Class C has an attachment probability of 1.64%, an expected loss of 1.39% and the notes are offered with price guidance of 4% to 4.5%.

Finally, Class D is sized at $25 million and is the multi-peril tranche covering Florida named storms and severe thunderstorms, both on a first and subsequent event basis. This tranche of notes attach at $290 million of losses.

This tranche has an attachment probability of 1.74%, an expected loss of 1.67% and are offered to investors with coupon guidance of 4.5% to 5%, we understand.

This complicated multi-tranche and multi-event coverage approach is likely designed to better support the stated reinsurance layer provided by Hannover Re, with attachment points reflecting the retention levels and the multiple event cover helping to support American Integrity’s need for reinsurance throughout the year.

It’s encouraging to see another new catastrophe bond sponsor coming to market in 2017. We will update you as this Integrity Re Ltd. (Series 2017-1) cat bond comes to market and you can read about this and every other transaction in the Artemis Deal Directory.

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