Merna Re II Ltd. (Series 2021-2)

The is State Farm’s second Merna Re II catastrophe bond issuance in quick succession in 2021, a clear sign of the attractive pricing on offer to sponsors looking for collateralized reinsurance from the capital markets.

The underlying perils are likely to be U.S. earthquake related again, we believe, with this latest Merna Re cat bond possibly providing State Farm with New Madrid earthquake reinsurance protection, as most of its deals have done.

It could be a broader US quake deal though, as State Farm has also sponsored some cat bonds that included quake risks from other regions of the United States.

For this latest transaction, Merna Re II Ltd., a Bermuda domiciled special purpose insurer, has issued and sold $300 million of Series 2021-2 Class A notes to cat bond funds and ILS investors, with the proceeds used to collateralize an underlying reinsurance agreement between the issuer and the sponsor State Farm.

The notes will provide State Farm with reinsurance against losses from earthquake events we’re assuming (possibly those occurring in the New Madrid fault region), on an indemnity trigger and we expect per-occurrence basis, with the protection running across a three-year term, maturing in June 2024.

It’s worth noting here than State Farm has sponsored multi-peril cat bonds in the past. But given that its track-record suggests quake coverage is its preferred target with a cat bond, we make that assumption again here.

The notes were priced to pay investors a coupon of 5.5%, we understand.

Unfortunately we don’t know the initial expected loss for this cat bond, but at a 5.5% coupon these look to be a little lower down the tower, so higher in terms of attachment risk, than other recent Merna Re deals. For example the April issue paid a coupon of 3.75%.

This is State Farm’s thirteenth cat bond issuance under the Merna Re name and fourteenth in total that we have listed in our Deal Directory.