Sanders Re II Ltd. (Series 2020-2)

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Sanders Re II Ltd. (Series 2020-2) – At a glance:

  • Issuer: Sanders Re II Ltd.
  • Cedent / sponsor: Allstate subsidiaries Castle Key Insurance and Castle Key Indemnity
  • 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: Florida named storm, earthquake, severe thunderstorm, volcanic eruption, meteorite impact, wildfire
  • Size: $200m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: May 2020

Sanders Re II Ltd. (Series 2020-2) – Full details:

This is Allstate’s second catastrophe bond issuance of 2020, the first time the insurer has returned twice to the cat bond market in a single year since 2017.

But the beneficiaries of the reinsurance protection that this Sanders Re II 2020-2 cat bond will provide are Allstate’s Florida-focused underwriting subsidiaries Castle Key Insurance and Castle Key Indemnity.

The last cat bond Allstate sponsored to benefit these insurers was the $200 million Sanders Re Ltd. (Series 2017-2) deal in May 2017 that matures soon. So this new deal can be considered a renewal of that Florida specific multi-peril reinsurance for the company.

For this new issuance, the Sanders Re II Ltd. special purpose insurer will seek to issue a single Series 2020-2 Class A tranche of notes, currently sized at $150 million, we understand.

These notes will be sold to investors and the proceeds used to collateralise reinsurance agreements between the vehicle and the cedents Castle Key Insurance and Indemnity.

The reinsurance protection will be on an indemnity trigger, per-occurrence basis and is structured to cascade as other reinsurance beneath is eroded, we’re told.

The reinsurance protection will be for losses from the multiple perils of named storm, earthquake, severe thunderstorm, volcanic eruption, meteorite impact and wildfire impacting the state of Florida.

Sources said the subject business covered under the Sanders Re II 2020-2 cat bonds reinsurance agreements consists of homeowners, condo, rental and boat owners personal lines property insurance policies underwritten by the two Castle Key insurers.

This cat bond transaction will cover a three year term for the insurers it provides reinsurance to, set for maturity at the end of May 2023.

It’s hard to know where the cat bond coverage from this Sanders Re II 2002-2 catastrophe bond will attach in the reinsurance tower for these Castle Key entities of Allstate, but we’re told it will cover a $200 million excess of $20 million of losses after the reinsurance beneath is eroded by losses.

The currently $150 million of notes on offer, which could get upsized to $200 million based on the above, will have an initial expected loss of 0.61% we understand and are being offered to cat bond investors with price guidance in a range from 5% to 5.5%.

The cat bond this deal will replace, the $200 million Sanders Re 2017-2 issuance, had an initial expected loss of 0.73% and priced with a coupon of 3.25%.

So this new Sanders Re II 2020-2 catastrophe bond will see Allstate paying a much higher rate of return to cat bond investors for the coverage, reflecting the increasing rates for cat bond coverage seen over the last year or so.

Update 1:

Allstate’s target for this catastrophe bond has been lifted to up to $200 million.

At the same time, the price guidance has been fixed at the upper-end of guidance, at 5.5%.

Update 2:

The upsizing of Allstate’s new catastrophe bond was successful and the deal grew by one-third to $200 million, with the coupon fixed at 5.5%.

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