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Locke Tavern Re Ltd. (Series 2023-1)

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Locke Tavern Re Ltd. (Series 2023-1) – At a glance:

  • Issuer: Locke Tavern Re Ltd.
  • Cedent / sponsor: The Andover Companies
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Northeast US named storm, severe thunderstorm, winter storm, earthquake
  • Size: $175m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Mar 2023

Locke Tavern Re Ltd. (Series 2023-1) – Full details:

This is a debut catastrophe bond sponsorship from one of the largest and longest-standing mutual insurance groups in the Northeast, The Andover Companies.

Sponsor The Andover Companies is seeking a collateralized source of multi-peril catastrophe reinsurance from the capital markets, using a newly established Bermuda based vehicle named Locke Tavern Re Ltd., that will be registered as a special purpose insurer (SPI) for the issuance of series of catastrophe bond notes.

Locke Tavern Re Ltd. will issue a single tranche of Series 2023-1 Class A notes, that will be sold to cat bond investors and the proceeds used to collateralize a reinsurance agreement between the issuer and The Andover Companies insurers.

We understand that the covered insurers are Merrimack Mutual Fire Insurance Company, Cambridge Mutual Fire Insurance Company, and Bay State Insurance Company to begin, while additional subsidiaries could be covered in future by the cat bond.

The issuance is targeted at $125 million in size, sources said, with this set to provide multi-peril US northeast catastrophe reinsurance, on a fully-collateralized basis, across a three-year term.

The covered perils are said to be Northeast US named storm, severe thunderstorm, winter storm, earthquake, while we understand the coverage will initially span the states of Connecticut, Illinois, Maine, Mass, New Hampshire, New Jersey, New York and Rhode Island.

The $125 million of Series 2023-1 Class A catastrophe bond notes issued by Locke Tavern Re Ltd. will provide The Andover Companies insurers with reinsurance on an indemnity trigger and per-occurrence basis, over their three year term.

We’re told the notes come with an initial attachment probability of 1.139%, an initial base expected loss of 0.919% and are being offered to cat bond funds and investors with spread guidance in a range from 5.5% to 6.25%.

This means an initial attachment point at $1.1 billion of losses for the first risk period, sources said, with the notes expected to cover a percentage of a layer of the reinsurance tower to exhaustion at $1.55 billion.

Update 1:

The Andover Companies is now targeting between $125 million and $175 million of reinsurance from its debut Locke Tavern Re catastrophe bond, we understand.

At the same time, the price guidance has been lowered, to between 5% and 5.5%.

Update 2:

The target size for the issuance was later narrowed to between $150 million and $175 million, while the price guidance was reduced again, with a spread of between 4.75% and 5% targeted.

At that level this cat bond could upsize by 40%, while pricing down roughly 17% at the mid-points.

Update 3:

The Andover Companies has now secured its first Locke Tavern Re cat bond at the upsized target of $175 million, while pricing was finalised at the bottom-end of revised guidance, at 4.75%, indicating a roughly 19% decline in spread from the initial mid-point.

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