Merna Re II Ltd. (Series 2023-1)

This transaction came to market in April as part of primary insurance giant State Farm’s first visit to the catastrophe bond market for reinsurance in 2023.

The company has sponsored two series of Merna Re II catastrophe bonds to secure additional collateralized property catastrophe reinsurance capacity from the capital markets.

State Farm has used its Merna Re II Ltd. special purpose insurer based in Bermuda for this transaction.

This first series of cat bond notes issued for State Farm in April 2023 are a Merna Re Ltd. Series 2023-1 issuance of Class A notes, sized at $250 million.

The notes will provide a source of multi-year indemnity and per-occurrence reinsurance protection to State Farm.

Information is relatively limited, but from what we understand from sources, this is a per-occurrence and indemnity trigger cat bond, designed to provide US named storm and earthquake cover on a first-event basis for all states (excluding California and Texas) and on a second-event basis for Florida named storms, across a three-year term to the end of June 2026.

We’re told that this is an interesting cat bond structure, designed to meet State Farm’s needs, and so only comes on-risk for Florida after a first-event has occurred, while we’re told it features a coupon step-up after that happens as well.

So it could be considered a layer of reinsurance protection that might replace other eroded covers at that stage.

The attachment probability for these notes is 1.95%, while the expected loss is 1.7%.

According to sources, the at-issuance spread for the $250 million of Merna Re Ltd. Series 2023-1 Class A notes has been finalised at 7.75%.