Sanders Re Ltd. (Series 2015-1)

Note: This Sanders Re cat bond issuance was pulled from the market as investors would not come bid within the price guidance. The understanding is that investors felt they were not being compensated sufficiently for the 7 year term. Reports suggest Allstate secured the protection in the traditional reinsurance market instead, although at what length of term remains uncertain.

With Sanders Re Ltd. (Series 2015-1) Allstate is seeking $130m of protection, for itself and affiliates, over an extended 7-year term for the perils of U.S. named storms (excluding Florida), U.S. earthquake (CA, NY, SC, WA), volcanic eruption (excluding Florida) and meteorite impact (excluding Florida).

The inclusion of volcanic eruption and meteorite impact is new, Allstate has not included them in its cat bonds before, showing that the insurer is watching what other primary insurers package into their deals (USAA and more recently Chubb).

It is interesting that the insurer has excluded Florida from those perils, it has done so before for U.S. wind, particularly as a meteorite impact on Florida could potentially cause damage and losses across a much wider swathe of the United States. However the meteorite and volcanic risk is again a very low contribution to expected losses for the deal.

The risk period of 7 years is perhaps the most telling factor, as Allstate seeks to lock in coverage over a longer term. The cat bond features redemption clauses, allowing Allstate to redeem the issued notes early for a premium, meaning that should the reinsurance and ILS market change dynamic again the insurer can close this deal down if better options emerge.

The coverage provided by the Sanders Re 2015-1 Class C notes will be on a per-occurrence basis and the deal utilises a state-weighted PCS index of personal and auto losses, Artemis understands.

The cat bond notes attach at an index level of $3.624 billion of losses and exhaust coverage at $4.07 billion. That equates to an initial base-case attachment probability of 1.08%, an exhaustion probability of 0.87% and an expected loss of 0.97%.

In terms of pricing for the notes, sources said that it is being offered with a coupon range of 362.5 bps (3.625%) to 387.5 bps (3.875%). This is the first cat bond we can recall seeing priced down to a half a basis point, perhaps reflecting pricing moving less than in previous years as the market approaches a floor level, where every half a point gained counts. At the lowest end of that pricing range the coupon would work out to be a multiple of 3.7 times the base expected loss.

The transaction features a variable reset, allowing Allstate to adjust the coverage provided slightly, no surprise given the long duration of the protection from this cat bond.