Armor Re Ltd. (Series 2014-1) – Full details:
The Armor Re 2014-1 cat bond has launched offering investors $150m of notes. The sale of the notes will be used to fully-collateralize a reinsurance agreement between Armor Re and the sponsor American Coastal Insurance, providing it with a source of capital markets backed reinsurance protection.
The Armor Re 2014-1 cat bond will provide American Coastal Insurance with a source of reinsurance protection for losses to its commercial residential book of business from named storms (so tropical storms and hurricanes) over three U.S. hurricane seasons, with maturity slated for the end of 2016.
The coverage will initially be for Florida only but the cat bond can be expanded to include coverage for other hurricane exposed states if the sponsor chooses to (a feature seen in the recent Citrus Re cat bond deals). It’s understood that the regions it can be expanded to are the U.S. states of Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Texas.
The Armor Re 2014-1 cat bond will provide its protection to American Coastal using an indemnity trigger and on a per-occurrence basis. Artemis understands that the Armor Re 2014-1 cat bond notes will attach at $75m of losses to American Coastal Insurance above its other reinsurance coverages. That makes the effective attachment for a first event $984m of losses to the sponsor, but should reinsurance layers be eroded and not replaced beneath that level, then the attachment point could drop-down.
The exhaustion point for the coverage provided by this cat bond cannot be less than $275m, which would suggest a $200m layer of protection so this cat bond may upsize to cover the whole layer.
The attachment probability for the notes is said to be 0.6%, the exhaustion probability 0.39% and the expected loss 0.46%. The, currently $150m, series of 2014-1 notes being issued by Armor Re Ltd. are being marketed with initial price guidance of 3.5% to 4%.
The Armor Re 2014-1 cat bond upsized by 33% to $200m, thus covering the full layer of American Coastal’s reinsurance program as we suggested it might.
At the same time the pricing settled at the upper end of guidance, at 4%, demonstrating that investors will not accept a risk at any cost.
Investors told Artemis that the reinsurance layers sitting beneath the Armor Re 2014-1 cat bond do not feature reinstatements, meaning that should they be eroded the cat bond may effectively become increasingly risky if the layers were not replaced. This has resulted in a cautious approach to this deal, with investors seeking the assurance of a higher coupon.