Merna Re II Ltd. (Series 2020-1)

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Merna Re II Ltd. (Series 2020-1) – At a glance:

  • Issuer: Merna Re II Ltd.
  • Cedent / sponsor: State Farm
  • Placement / structuring agent/s: Unknown
  • Risk modelling / calculation agents etc: Unknown
  • Risks / perils covered: U.S. earthquake
  • Size: $250m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Apr 2020

Merna Re II Ltd. (Series 2020-1) – Full details:

U.S. primary insurance carrier State Farm has returned to the capital markets again with another privately placed and issued catastrophe bond transaction.

As with all of State Farm’s cat bonds over the last five years, we understand the issuance was marketed to a select group of catastrophe bond investors.

The successful placement of the notes with ILS funds and investors has secured State Farm a new $250 million source of fully collateralised reinsurance protection, through this Merna Re II Ltd. (Series 2020-1) transaction.

As with other recent catastrophe bond transactions from State Farm, we assume that the covered peril is U.S. earthquake risk, although we cannot be certain if that is country-wide coverage or focused on a peak quake zone like the New Madrid fault, as some of the insurers previous cat bonds have been.

We do know that the transaction is slated for maturity in April 2023, suggesting the term of earthquake reinsurance coverage is going to be roughly three years for State Farm, but also perhaps that it was actually issued back around April and has just taken some weeks to come to our attention.

As a result, we’ve listed the transaction as an April issuance in our extensive catastrophe bond Deal Directory.

The $250 million of Series 2020-1 Class A notes issued by State Farm’s special purpose insurer Merna Re II Ltd. will have been sold to select ILS funds and investors and the proceeds used to fully collateralise an underlying reinsurance agreement between the SPI and the insurance carrier.

As said, we expect the reinsurance protection covers certain U.S. earthquake losses for State Farm, with the trigger expected to be an indemnity trigger.

We don’t have details of the attachment level or expected loss and pricing of these Merna Re II 2020-1 catastrophe bond notes. Should we source that information it will be added to our Deal Directory.

The private syndication of this latest $250 million Merna Re II catastrophe bond will have helped to keep State Farm’s costs of issuance and reinsurance as low as possible, by utilising a private club type deal, we believe.

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