Armor Re II Ltd. (Series 2020-1)

Note: This Armor Re II Ltd. 2020-1 cat bond issuance was pulled from the market during the marketing phase. We were told that the transaction did not receive the necessary support in the market and as a result the book failed to build sufficiently in the early stages. There had been an appetite to get the deal done at a smaller size but even that failed, we’re told, suggesting a lack of investor appetite for the risk at the offered pricing level. It’s likely United (UPC) will secure the coverage from a traditional reinsurance arrangement instead, although possibly from a collateralised source.

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

Florida headquartered, expansive primary insurer United Insurance Holdings (UPC Insurance) has returned to the catastrophe bond market in search of a fresh source of capital markets backed catastrophe reinsurance protection, to expand on the $100 million of in-force cat bond coverage it has from its 2019 issuances.

This new transaction seeks to replace and upsize the $100 million Armor Re II 2018 cat bond that matures in May 2020.

The company’s Armor Re II Ltd. special purpose insurer will seek to issue a single tranche of Series 2020-1 Class A notes that will be offered and sold to ILS investors and the proceeds used to collateralise underlying reinsurance agreements to the benefit of United’s insurers.

The beneficiaries of the firm’s latest catastrophe bond deal will be subsidiaries United Property & Casualty Insurance Co., Family Security Insurance Co. and American Coastal Insurance to begin with, we understand.

United (UPC) is seeking a fully collateralised source of catastrophe reinsurance protection against losses from U.S. named storms and U.S. earthquakes across a three-year term with this arrangement, with the cat bond coming on-risk at June 1st this year.

The reinsurance protection will be afforded on an indemnity and per-occurrence basis, structured as cascading coverage as the insurers other recent catastrophe bonds have been, meaning the attachment level can adjust during an annual risk period, as qualifying loss events erode away any other layers of reinsurance protection that inure to the benefit of this cat bond.

As a result the coverage is seen to work more closely with other traditional reinsurance layers within the United (UPC) reinsurance program.

The issuance is targeting $130 million of coverage for the sponsor, through the sale of a single Class A tranche of Series 2020-1 notes.

The $130 million of Armor Re II 2020-1 Class A notes are set to attach at $25 million of losses (the tower retention) and sit above the inuring catastrophe reinsurance layers, with an initial attachment probability of 1.77% and expected loss of 1.64%, both at the base case.

We understand that this 2020 Armor Re II cat bond will effectively sit at the top of the reinsurance tower for United (UPC), even above the insurers 2019 cat bond deal, with the attachment point being around the $1.33 billion mark. We understand the layer it will cover is also sized at $130 million, which suggests the cat bond won’t upsize beyond its launch indication.

We’re told that the $130 million of notes are being offered to catastrophe bond investors with price guidance in a range from 6.25% to 6.75%.

Compared to the insurers 2019 cat bond that represents an uptick in pricing, especially considering this transaction will sit a little higher in the tower as well as being priced at a higher level.