Safepoint returns with $165m Manatee Re II 2018-1 cat bond

by Artemis on March 5, 2018

U.S. primary insurer Safepoint Insurance Company is returning to the catastrophe bond market for what will be the third transaction it has sponsored, seeking an early slice of its June reinsurance renewal with a multi-peril Manatee Re II Ltd. (Series 2018-1) deal that is currently seeking $165 million of coverage.

For its third cat bond Safepoint is expanding the capital markets backed reinsurance protection it receives, adding a new peril, a new state that coverage will be active in and also registering a new Bermuda domiciled special purpose insurer (SPI), Manatee Re II Ltd. for the offering, we understand.

The new vehicle has likely been deemed necessary to form as one tranche of Safepoint’s Manatee Re Ltd. (Series 2016-1) cat bond was triggered by losses from hurricane Irma and it’s assumed that layer of notes will pay out to the sponsor in full.

Interestingly, we’re told this cat bond is part of Safepoint’s June reinsurance renewal, with the transaction set to only come in-force that month despite being scheduled for issuance in March. This shows the insurer coming to market early to secure its protection in advance of the main renewal discussions, which could be well-received by investors seeking allocation opportunities right now.

We expect that other U.S. insurers may choose to come to market earlier than normal with cat bonds this year, in order to benefit from investor appetite and to get coverage locked in before the renewal negotiations begin in earnest.

The Manatee Re II cat bond sees Safepoint looking to secure a three-year source of fully-collateralized reinsurance protection for the perils of U.S. named storms and U.S. severe thunderstorms. The coverage will be for the states of Florida, Louisiana and Texas initially, with the ability to expand at annual resets if the sponsor chooses, we’re told.

Manatee Re II Ltd. will seek to issue two tranches of notes, currently targeting a $165 million issuance, which will be sold to qualified investors to collateralize the necessary reinsurance agreements with the insurer.

The coverage from this cat bond is on an indemnity trigger basis and designed as a cascading and per-occurrence structure the coverage will drop down as underlying stated reinsurance layers are eroded by loss events.

A currently $125 million Class A tranche of notes is the less risky of the two, with an initial attachment probability of 2.22% and an expected loss of 1.08%. This layer sits higher up in Safepoint’s reinsurance tower, above its FHCF and much of its other reinsurance coverage. We’re told this tranche will be offered to investors with coupon price guidance of 4.25% to 4.75%.

The second tranche, a currently $40 million layer of Class B notes, have an initial attachment probability of 6.99% and expected loss of 4.07%. Again, this tranche sits above the FHCF coverage Safepoint has, we’re told. These notes are set to be offered to cat bond investors with price guidance of 7.75% to 8.5%, we understand.

Both tranches of Series 2018-1 notes have room for growth if investor appetite allows, as they cover layers of risk larger than their current size in the Safepoint reinsurance tower, sources said.

We’re told that this Manatee Re II 2018-1 cat bond will be issued before the end of March, so falling into first-quarter 2018 cat bond issuance which already stands at $2.38 billion, according to Artemis’ data.

We will keep you updated as this Manatee Re II Ltd. (Series 2018-1) catastrophe bond proceeds to market and you can read all about this and every other cat bond transaction in the Artemis Deal Directory.

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