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Merna Re II Ltd. (Series 2022-3)

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Merna Re II Ltd. (Series 2022-3) – 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: Texas named storms
  • Size: $300m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Jun 2022

Merna Re II Ltd. (Series 2022-3) – Full details:

This is primary insurance giant State Farm’s second visit to the catastrophe bond market for reinsurance in 2022, sponsoring two series of Merna Re II catastrophe bonds to secure additional collateralized property catastrophe reinsurance capacity from the capital markets.

Two series were issued at the same time, this $300 million Merna Re II Ltd. Series 2022-3 issuance, while a smaller $200 million Merna Re II Ltd. Series 2022-2 cat bond also came to market at the same time.

It is one of the largest single visits to the cat bond market that State Farm has ever made and also notable as 2022 is the first time we’ve recorded three series of Merna Re cat bonds from the insurer in a single year.

State Farm has placed its new catastrophe bonds relatively privately with a club, or select group of initial investors, we understand.

Enabling State Farm to source $500 million of fully-collateralized reinsurance capacity, from insurance-linked securities (ILS) funds and investors, with a full 144A cat bond, but on a privately marketed and placed basis.

Merna Re II Ltd., State Farm’s Bermuda domiciled special purpose insurer, has issued two series of cat bond notes, with both having been sold to cat bond funds and ILS investors, and the proceeds used to collateralize two reinsurance agreements between the issuing vehicle and the sponsor State Farm.

Merna Re II Ltd. has issued $200 million of Series 2022-2 Class A notes and $300 million of Series 2022-3 Class A notes.

Both of the series of notes will provide State Farm with US property catastrophe reinsurance protection, on an indemnity trigger and we expect per-occurrence basis, with the $500 million of protection running across a three-year term to July 7th 2025.

At this time further details, such as the covered perils, are unknown. But given the dual-series issuance, the timing around the mid-year reinsurance renewals, it’s safe to assume there is more than just US earthquake risk involved and one of these could be Florida, or US wind focused, we understand.

The $500 million of cat bond notes issued by Merna Re II will now be more broadly available to funds and investors on the cat bond secondary market.

Update 1:

We have now learned that this Merna Re II 2022-3 catastrophe bond from State Farm provides it with $300 million of Texas named storm and hurricane reinsurance protection.

The $300 million of Series 2022-3 Class A notes came with an initial base expected loss of 2.78% and the notes were eventually priced to pay investors a coupon of 7.25%, we understand.

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