Armor Re II Ltd. (Series 2019-1)

This is United Insurance Holdings second catastrophe bond issuance under its Armor Re II Ltd. Bermuda domiciled special purpose insurance vehicle.

In this Series 2019-1 cat bond deal, United Insurance Holdings is seeking at least $200 million of fully collateralized reinsurance coverage from the capital markets.

The protection will benefit four of United’s insurer subsidiaries, namely United Property & Casualty Insurance Co. (UPC), Family Security Insurance Co., Interboro Insurance Co., and American Coastal Insurance.

This will be United’s largest catastrophe bond to-date and is double the size of its $100 million Armor Re II Ltd. (Series 2018-1) transaction.

Armor Re II Ltd. will seek to issue two tranches of Series 2019-1 notes in this deal, with both tranches targeting $100 million or more in terms of reinsurance coverage for the insurer.

The notes from each tranche will be sold to ILS investors, with the resulting proceeds set to be used to collateralize underlying reinsurance agreements between the SPI and United itself.

In the same way as the 2018 transaction, the Armor Re II 2019-1 notes will provide United and its subsidiaries with a source of collateralized and multi-year reinsurance across a three-year term, on an indemnity trigger and per-occurrence basis.

We’re told the coverage will cascade as well, as does the 2018 Armor Re II cat bond protection, meaning the attachment level for each tranche of notes can adjust during an annual risk period, as qualifying loss events erode any other layers of reinsurance protection that inure to the benefit of this cat bond.

The reinsurance protection that United’s insurer subsidiaries will receive from the Armor Re II 2019 cat bond deal will be for certain losses caused by U.S. named storm and earthquake events, so the same as the 2018 transaction.

The coverage area is for across all the states where United (UPC) operates, so Florida, the east and gulf coasts are included for named storm risks, while quake reinsurance cover will be for all quake exposed states United’s subsidiaries currently operate in.

Both tranches of notes from this Armor Re II 2019-1 cat bond will sit below the 2018 transaction and atop United’s inuring traditional catastrophe reinsurance layer.

The first currently $100 million Class A tranche of Series 2019-1 notes will have an initial expected loss of 1.64% and attach after a $26 million retention, the $1.039 billion of inuring traditional reinsurance and the $100 million Class B tranche are all eroded.

The second currently $100 million Class B tranche will have an initial expected loss of 2.08% and attach after the $26 million retention and the $1.039 billion of traditional reinsurance erode.

Both of these tranches cover a $200 million layer of risk, so it looks like there is room for this latest cat bond from United to upsize considerably, to as much as $400 million, should investor appetite allow.

As a result, the Class A tranche of Armor Re II Series 2019-1 cat bond notes are being offered to investors with price guidance in a range from 5.4% to 5.9%, while the riskier Class B tranche of notes are offered at 5.9% to 6.4%.

Update 1:

It looks like the Armor Re II 2019-1 catastrophe bond has been slashed in half, as the Class B higher risk tranche has now disappeared from the issuance, we’re told.

Meanwhile, the Class A tranche of notes remained at $100 million in size and the pricing moved to the top-end of guidance, at 5.9%.

That implies a multiple which if replicated for the Class B notes would have taken their pricing far above the marketed range. As a result we suspect this layer will have been placed either traditionally, or as a collateralized reinsurance arrangement and possibly only on a one-year basis.