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Sanders Re II Ltd. (Series 2020-1)

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

  • Issuer: Sanders Re II Ltd.
  • Cedent / sponsor: Allstate
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and joint bookrunner. Goldman Sachs is joint bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. (ex Florida) named storm, earthquake, severe weather, fire, other perils
  • Size: $250m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Mar 2020

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

U.S. primary insurance giant Allstate has returned to the insurance-linked securities (ILS) market for its first catastrophe bond issuance of 2020.

For this transaction Allstate will be using its Sanders Re II Ltd. special purpose insurer (SPI), which it established in Bermuda a year ago.

Initially the company is seeking $250 million of fully collateralised multi-peril U.S. property catastrophe reinsurance coverage with this transaction.

For this new deal, Sanders Re II Ltd. will seek to issue two tranches of notes that will be sold to cat bond investors and the proceeds used to collateralise reinsurance arrangements between the issuer and Allstate.

The notes will provide Allstate with a four-year source of U.S. multi-peril catastrophe reinsurance protection, covering certain losses from U.S. (excluding Florida) named storms, earthquakes, severe weather events, fires, and losses from other perils, sources said.

Reinsurance protection from the new cat bond will cover certain losses to Allstate’s personal lines property and auto books of business.

Coverage will be on an indemnity trigger basis and the new Sanders Re II cat bond will provide Allstate with both per-occurrence and aggregate reinsurance protection, we understand.

A $150 million Class A tranche of Series 2020-1 notes issued by Sanders Re II will provide per-occurrence protection, attaching at $2.75 billion of losses to Allstate, giving them an initial base expected loss of almost 0.95%, we understand.

The Class A notes are being offered to cat bond investors with price guidance in a range from 4.25% to 4.75%, we’re told.

A $100 million Class B tranche of notes will provide both per-occurrence and annual aggregate reinsurance protection, again attaching at $2.75 billion of losses to Allstate on an occurrence basis and $3.976 billion on an aggregate basis, giving the notes an expected loss at the base case of 0.92% on a combined basis, we understand.

We’re told the price guidance for the Class B tranche of Sanders Re II Ltd. Series 2020-1 notes is 12% to 13%, making this clearly the riskier layer of this cat bond which is driven by the aggregate exposure.

As with other recent cat bonds from Allstate, the design of the structure will provide valuable reinsurance protection to the insurer, slotting alongside its traditional layers of protection in the tower and being available to respond to both large single catastrophe loss events as well as attrition due to multiple smaller or frequency catastrophe losses.

Update 1:

The Class A notes have seen their pricing for this layer fixed at the mid-point at 4.5%.

The Class B tranche of Sanders Re II Ltd. Series 2020-1 notes saw guidance narrowed and moved towards the upper-end, with the notes offered with pricing of 12.75% to 13%.

Update 2:

At pricing the Sanders Re II Ltd. 2020-1 cat bond transaction remained at $250m in size for Allstate.

The $150m of Class A notes priced at the mid-point of initial guidance at 4.5%.

The $100m of Class B notes priced at 12.75%, so in the upper-end of initial guidance.

Update – February 2022:

The Class B tranche of notes attached and has been eroded by $3.2 million, as losses from the 2020/2021 aggregate year ate up through the 2019-1 cat bond layer that sat beneath, with the Texas freeze and winter storm Uri the main drivers.

The secondary market has the $100 million of Class B notes marked down for a loss of between 60% and 70% of principal, suggesting further erosion is likely.

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