$100m Armor Re II cat bond launched for United Insurance Holdings subsidiaries

by Artemis on March 26, 2018

United Insurance Holdings (UPC Insurance), the Florida headquartered expansive primary insurance group, is returning to the capital markets in search of reinsurance protection with a currently $100 million sized Armor Re II Ltd. (Series 2018-1) catastrophe bond issuance.

The transaction will feature four ceding companies which are all subsidiaries of United Insurance Holdings, sources told Artemis.

The Bermuda-registered Armor Re II Ltd. special purpose insurer (SPI) will issue a single tranche of Series 2018-1 notes, that will be sold to cat bond investors and the proceeds used to collateralize an underlying reinsurance agreement between the SPI and sponsor.

The Armor Re II 2018-1 cat bond will provide protection to United subsidiaries United Property & Casualty Insurance Co., Family Security Insurance Co., Interboro Insurance Co. and American Coastal Insurance.

The first three were previously beneficiaries of United’s Laetere Re cat bond, which was just a one-year deal, while American Coastal Insurance had previously sponsored three Armor Re Ltd. cat bonds of its own.

However, United Insurance Holdings acquired American Coastal in late 2017 and so now the company has been folded into this UPC catastrophe bond issuance, although the Armor name is set to remain.

This currently $100 million issue seeks fully-collateralized U.S. named storm and earthquake coverage for UPC’s four subsidiaries, with the covered area being much of the Eastern, including Florida and Gulf states for named storm risks, and the earthquake exposed states that UPC operates in on the eastern and southern sides of the country for quake risks.

The single tranche of Armor Re II Series 2018-1 Class A notes will be exposed for a two-year risk period, with maturity slated for the end of May 2020, we understand.

The U.S. named storm and earthquake reinsurance coverage that the $100 million or more notes provide will be afforded on an indemnity trigger, per-occurrence and cascading basis, sources said.

The cascading nature of the coverage means that the attachment level for the notes will adjust throughout an annual risk period, as any qualifying loss events erode other layers of reinsurance protection that inure to the benefit of the cat bond.

The single $100 million tranche of Class A notes to be issued by Armor Re II Ltd. have an initial attachment probability of 1.15%, an initial expected loss of 1.07% and are being offered to ILS investors with coupon pricing in a range from 4% to 4.5%, we understand.

The notes would sit right near the top of the UPC reinsurance tower with an attachment point equivalent to $2.12 billion of losses to the insurer, although the stated attachment is just the $35 million retention at the foot of the tower, reflecting the fact the notes could cascade down as losses erode inuring layers of protection.

It’s encouraging to see United Insurance Holdings returning to the catastrophe bond market for this latest transaction and the growth of the firms portfolio, thanks to its acquisitions and expansive nature, could mean that its cat bond offerings grow over time.

We’ll update you as the Armor Re II Ltd. (Series 2018-1) catastrophe bond proceeds to market and you can read about this and every other cat bond deal in the Artemis Deal Directory.

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