Allstate sponsoring $400m Sanders Re 2018-1 multi-peril cat bond

by Artemis on March 9, 2018

U.S. primary insurance company Allstate is returning for its latest catastrophe bond transaction, a $400 million Sanders Re Ltd. (Series 2018-1) U.S. multi-peril deal with certain innovative features that show the insurer continues to expand its protection from the cat bond market.

Allstate is seeking a $400 million slice of collateralized reinsurance with its latest catastrophe bond, Artemis understands from sources, with the deal featuring an attempt to secure both per-occurrence and annual aggregate protection in a novel dual-coverage structure.

This isn’t unique by any means, but larger cat bond issues tend to be focused on one type of coverage or the other, so seeing both in a single tranche of notes is less typical.

The latest catastrophe bond from Allstate is the firms seventh attempted Sanders Re issuance, one was not completed after the attempted 7-year term saw Allstate taking the risk to the traditional market instead, and the ninth Allstate deal listed in our cat bond Deal Directory. Allstate still has 3 cat bond transactions outstanding, totaling $1.325 billion of reinsurance capacity, although some of its 2014-1 transaction will mature in Q2.

With this latest cat bond Allstate’s special purpose vehicle Sanders Re Ltd. will issue a single tranche of Series 2018-1 Class A cat bond notes, targeting a $400 million issue, which will be sold to qualified investors in order to collateralize underlying reinsurance agreements with the sponsor. The notes will also cover Allstate subsidiaries we understand.

We’re told that the Sanders Re 2018-1 cat bond notes will provide Allstate with four-years of reinsurance cover against losses to its personal lines book from multiple U.S. perils, including named storms, earthquakes, severe weather, fires and so-called other perils. The coverage will not include Florida and New Jersey, sources said.

The notes will feature an indemnity trigger, but the coverage they provide will be both on a per-occurrence and an annual aggregate basis, a novel structure affording the insurer two sections of reinsurance protection within a single tranche of notes. We understand both layers will provide $500 million of coverage, so there is a chance this cat bond upsizes while marketing.

As a result of this novel feature, we understand the multiple paid by this cat bond will be relatively high to compensate investors for the dual occurrence and aggregate sections of risk.

The Sanders Re 2018-1 cat bond notes will have an initial expected loss of 0.64% and are being offered to investors with spread guidance of 5.5% to 6.25%, we’re told.

Also noteworthy are the naming of perils, with severe weather possibly designed to include more than just severe thunderstorm risks, fire more than just wildfire, and other perils a catch-all likely able to capture losses from any perils Allstate and subsidiaries are affected by over the term of the catastrophe bond deal.

These expansions of coverage likely make the Sanders Re 2018-1 cat bond more commensurate with the reinsurance protection Allstate secures from its traditional program.

We understand the transaction is targeting issuance before the end of the quarter, so falling into first-quarter 2018 cat bond issuance which already stands at $2.44 billion, according to Artemis’ data. The first-quarter of 2018 is now heading for a new record in terms of cat bond issuance volume.

We will keep you updated as this Sanders Re 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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