Merna Re II Ltd. (Series 2019-1)

U.S. insurer State Farm has once again marketed and issued a private transaction to a select group of catastrophe bond investors, resulting in a $300 million Merna Re II Ltd. (Series 2019-1) transaction.

This is the fourth year in a row that State Farm has sought additional collateralized earthquake reinsurance protection from the capital markets in a privately syndicated catastrophe bond issuance.

This deal will have been privately marketed to a select group of insurance-linked securities (ILS) funds and investors, using a syndicated approach but not marketed to the entire ILS investor community, hence details of the transaction are somewhat limited.

For its latest cat bond State Farm has registered a new special purpose insurer in Bermuda, named Merna Re II Ltd.

Merna Re II Ltd. has issued a single tranche featuring $300 million of Series 2019-1 Class A notes which have been sold to ILS investors, with the funds raised used to collateralize a trust to support a reinsurance agreement between Merna Re II and State Farm.

We’re told the reinsurance coverage this cat bond provides State Farm is for U.S. earthquake exposures, however we do not know if this is country-wide, or just the New Madrid zone, as many of the previous Merna Re cat bonds have been focused on.

The reinsurance coverage that State Farm benefits from with this Merna Re II cat bond will run for a three-year term, we understand, with maturity due April 7th 2022.

We assume the private syndication of these Merna Re II notes was so as to keep State Farm’s costs of issuance and reinsurance as low as possible, by utilising a private club type deal.

This $300 million Merna Re II 2019-1 cat bond will utilise an indemnity trigger, as State Farm’s cat bond coverage tends to provide the insurer with a source of indemnity based reinsurance protection.

The fully collateralized reinsurance protection that State Farm benefits from with this new Merna Re II 2019 cat bond deal will serve to replace that provided by the soon to mature $300 million Merna Re 2016-1 transaction.