Merna Re Ltd. (Series 2017-1)

The Merna Re 2017-1 cat bond transaction, sponsored by U.S. insurer State Farm, has been privately marketed to a select group of insurance-linked securities (ILS) funds and investors, we understand, hence details of the transaction itself remain limited.

Merna Re Ltd. has issued a single tranche of Series 2017-1 Class A notes which have been sold privately to ILS investors in order to collateralise a reinsurance agreement between Merna Re and sponsor State Farm.

As with State Farm’s 2016 Merna Re cat bond, we assume this is in order to keep costs of reinsurance as low as possible, with the insurer electing to keep issuance costs low through a private club type deal. It also allows State Farm to build deeper relationships with key ILS investor markets, especially those that also participate in its traditional reinsurance renewal.

The covered perils ceded to ILS investors through this Merna Re 2017 cat bond are U.S. earthquake risks (likely covering the New Madrid fault region in the mid-west where State Farm has a significant exposure), the same peril as the insurers last few transactions.

State Farm’s $300m Merna Re V cat bond, which covered New Madrid earthquakes, matures on the 7th April 2017, so we assume this Merna Re 2017-1 transaction is a renewal for that slice of coverage.

The Merna Re 2017-1 cat bond notes will feature an indemnity trigger, given State Farm’s cat bonds in recent years have all provided the insurer with a source of indemnity reinsurance protection.

The Merna Re 2017-1 cat bond has a three-year term, with the notes coming due for maturity at the 8th April 2020.

Other facts on this transaction such as expected loss, attachment point and pricing are not known at this stage, due to the private nature of the deal.