Integrity Re Ltd. (Series 2022-1)

This is the fifth catastrophe bond issuance for sponsoring insurer American Integrity Insurance Company of Florida, Inc.

With this new cat bond, American Integrity it looking to replace and expand on some maturing reinsurance cover from its 2018 cat bond deal.

It’s notable that American Integrity has switched back to its Bermuda special purpose insurer for its latest cat bond, having used a Singapore vehicle for its last issuance in 2020.

Integrity Re Ltd. is aiming to issue two tranches of Series 2022-1 notes, with a target issuance size of $125 million or more.

The notes will be sold to investors and the proceeds used to collateralize reinsurance agreements between American Integrity’s fronting and risk transformation partner for the cat bond, Hannover Re, and the special purpose vehicle.

Integrity Re Ltd. will therefore enter into two retrocession agreements with Hannover Re, one for each tranche of notes, with that reinsurer then entering into reinsurance agreements with American Integrity to provide the protection.

This Integrity Re Series 2022-1 cat bond will provide American Integrity with reinsurance protection against named storm events in Florida, on an indemnity and cascading per-occurrence basis and over a three-year term, so covering three Atlantic hurricane seasons, we’re told.

With this catastrophe bond American Integrity is building out more of the upper-layers of its reinsurance tower with the capital markets support, with the two tranches set to inure to reinsurance beneath and their attachment cascading down as layers of protection beneath are eroded by first and subsequent events.

A currently $75 million Class A tranche of notes are the more risk remote, having an initial expected loss of 1.37% at the base case and being offered to investors with price guidance in a range from 6.25% to 6.75%.

A currently $50 million Class B tranche sit a few layers further down, having an initial expected loss of 1.62% base, and offering investors a coupon of between 7.25% and 8%.

We’re told it would take a first event causing American Integrity over $850 million of losses to attach the notes first time around, obviously less for a second event, should a smaller storm loss have eroded some of the layers sitting beneath.

This cascading type of occurrence protection can be extremely useful to Florida focused carriers, offering them a way to keep the protection more useful to them after catastrophe losses occur, without gaps in their reinsurance towers opening up.

Update 1:

This Integrity Re 2022-1 catastrophe bond issuance was delayed while the transaction was restructured.

This resulted in the riskier Class B tranche of notes being pulled and not being issued, while the remaining Class A tranche was restructured and its pricing set at the top-end of initial guidance.

The remaining Class A tranche of notes continues to have a $75 million target in terms of size, with this coverage set to inure to reinsurance beneath and its attachment cascading down as layers of protection are eroded by first and subsequent events.

The $75 million Class A tranche of notes have had their risk metrics adjusted, with the initial expected loss slightly higher now at 1.41% at the base case and the price guidance now fixed at the top of the original range, at a coupon of 6.75%.

We understand that on a first-event basis, it would require a hurricane causing American Integrity roughly $980 million ground-up loss for these Series 2022-1 Class A notes to attach.

Update 2:

The price guidance for the remaining $75 million tranche of Class A notes has now been lifted up to 7%, so above the initial range, in a further reflection of cat bond investor demand for higher spreads at this time.

Update 3:

The Integrity Re 2022-1 catastrophe bond settled at $75 million in size, with a 7% coupon.