United (UPC) sponsoring $200m Armor Re II cat bond for 2019

United Insurance Holdings (UPC Insurance) is back with a new catastrophe bond for 2019, Armor Re II Ltd. (Series 2019-1), and it should be the firms largest yet at an expected $200 million or greater in size.

Sources told us that the Armor Re II Ltd. (Series 2019-1) catastrophe bond transaction is now being marketed to insurance-linked securities (ILS) investors and funds, as United (UPC) seeks to expand its ILS backed reinsurance capacity.

The Florida headquartered and fast-growing primary insurance group is again seeking coverage for four of the United Insurance Holdings subsidiary insurers, namely United Property & Casualty Insurance Co., Family Security Insurance Co., Interboro Insurance Co., and American Coastal Insurance.

United (UPC) sponsored a $100 million Armor Re II Ltd. (Series 2018-1) cat bond transaction a year ago, so it’s encouraging to see the insurers’ ambition has doubled as it seeks $200 million of collateralized reinsurance protection from this latest transaction.

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

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%, we’re told.

So, this could be a good test of catastrophe bond investor and ILS fund appetite for a U.S. hurricane exposed cat bond, with the potential for it to upsize and where it prices a decent measure of market health and risk appetite at this time.

Few other cat bonds to-date have offered this chance of significant upsizing so far this year.

We’ll keep you updated as this latest catastrophe bond Armor Re II Ltd. (Series 2019-1) comes to market in advance of the mid-year renewals and you can read about this transaction and every other cat bond in the Artemis Deal Directory.

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