Manatee Re Ltd. (Series 2016-1) – Full details:
Safepoint’s appropriately Florida-themed Bermuda registered special purpose insurer Manatee Re Ltd. will be seeking to issue three tranches of Series 2016-1 cat bond notes to investors, in order to collateralize underlying reinsurance agreements.
The three tranches will provide the insurer with a targeted $100m, or greater, of reinsurance protection for the perils of Florida and Louisiana named storms. Last year’s Manatee Re cat bond was Florida wind only, as Safepoint has been expanding its business scope and now requires broader coverage.
The Manatee Re 2016-1 cat bond will provide its named storm reinsurance protection across a three-year term, to March 2019, with protection on a per-occurrence basis and using an indemnity trigger.
Safepoint is seeking protection across a number of layers of its reinsurance program with this Manatee Re 2016-1 cat bond, with the three tranches all having differing attachment points.
The Class A tranche, which has a preliminary size of $50m, attaches at $30m of losses above Safepoint’s FHCF participation reinsurance cover, and covers a $200m layer. That effectively means a $306m attachment point and $506m exhaustion point, we’re told.
The Class A tranche has an attachment probability of 1.92% and an expected loss of 0.98% at the base case. These notes are being marketed with price guidance of 4.75% to 5.5%.
The $30m Class B tranche sits alongside the FHCF reinsurance layer, so attaching at around $65m and providing pro-rate coverage up to $300m of losses in Safepoint’s tower. It’s possible that this tranche will enable Safepoint to reduce its use of FHCF coverage, as we’ve seen other Florida insurers do.
The Class B notes have an attachment probability of 7.61% and an expected loss of 3.05% at the base case, so much more risky than Class A. These notes are being offered to investors with coupon guidance of 7% to 7.75%.
Finally a $20m Class C tranche is even more risky, attaching at $30m of losses and covering a $35m layer up to $65m. As a result the attachment probability for Class C is high at 14.28%, while the base expected loss is 10.32%. This tranche is being marketed with pricing guidance of 15.25% to 16.25%, we’re told.
The tranche B class of catastrophe bond notes which were being offered as part of Safepoint Insurance Company’s latest cat bond deal Manatee Re Ltd. (Series 2016-1) were pulled from the offering.
The Class B tranche were designed to sit alongside the insurers Florida Hurricane Catastrophe Fund (FHCF) reinsurance layer, perhaps designed to help it reduce its reliance on the FHCF. It’s not clear whether that had any bearing on this tranche being pulled from the offering or whether it is simply a case of investor feedback being most positive on the Class A and C tranches.
The Class A tranche of notes, which began life with a preliminary size of $50m and price guidance of 4.75% to 5.5%, which was subsequently revised upwards to 5% to 5.5%, has now been priced at an upsized $75m with pricing fixed at 5.25%, we understand.
Meanwhile the much higher risk Class C tranche has not increased in size, remaining at the $20m since launch. However the pricing on this risky layer, one of the riskiest to hit the cat bond market in some time, has been set at the top-end of initial guidance in response to investor demand for a coupon commensurate with the risk.
The Class C notes were launched with price guidance of 15.25% to 16.25%, which was subsequently narrowed towards the top-end at 16% to 16.25%. At final pricing this $20m tranche has been fixed at 16.25%, based on investor feedback and demand we’re told.
So Safepoint has secured $95m of capital markets-backed reinsurance protection for some of its Florida and Louisiana named storm risks.
Update September 22nd 2017:
Sponsor Safepoint Insurance Company expects to collect on the riskiest $20 million Class C tranche of notes after its claims from hurricane Irma look set to eat through that layer of reinsurance protection.
Sources told Artemis that an event notice has been filed on behalf of Safepoint Insurance Company, the sponsor of the Manatee Re Ltd. (Series 2016-1) catastrophe bond, revealing the initial estimate of the insurers hurricane Irma losses that qualify under the terms of the cat bond and the level reported suggests a loss for the bonds holders.
We’re told that the event notice discloses a $100 million initial estimate of Safepoint’s hurricane Irma losses (that are relevant and qualify under the cat bond terms), which is sufficient to eat through the highest risk Class C tranche of Manatee Re 2016-1 cat bond notes.
Update March 29th 2019:
The Manatee Re 2016-1 cat bond was allowed to mature, which will have enabled sponsor Safepoint Insurance to collect on the reinsurance recovery it was due from the $20 million Class C notes that were impacted by losses from hurricane Irma in September 2017.