Sanders Re II Ltd. (Series 2021-1)

US primary insurance giant Allstate is turning to the catastrophe bond market in search of occurrence reinsurance limit to fill out gaps left in its program after recent losses (more details here), we believe.

Sanders Re II Ltd. will seek to issue a single tranche of Series 2021-1 Class A notes, with a target issuance size of at least $200 million.

The $200 million or more of Class A notes being issued will provide Allstate and subsidiaries with a roughly four-year source of collateralized reinsurance protection, on an indemnity and per-occurrence basis.

The cat bond notes issued by Sanders Re II will be exposed to losses from US named storms, earthquakes, severe weather, wildfires and other perils, we understand. However, the notes will not cover Florida, as Allstate tends to deal with its Florida exposure separately, in a specific reinsurance tower.

The layer occupied by this per-occurrence catastrophe bond from Allstate will be $400 million in size, attaching initially at $3.75 billion and exhausting at $4.15 billion of losses, we’re told.

Hence, at $200 million in size initially, there is ample room for this cat bond to expand in size, even doubling, should investor demand allow.

The $200 million of Class A notes will have an initial expected loss of 1.1475%, our sources said, while they are being offered to cat bond investors with spread guidance in a range from 3.75% to 4.25%.

Given the strong execution seen in recent catastrophe bond issues, it will be interesting to see how this deal from Allstate is received, particularly as the insurer has made recoveries from its cat bonds recently.

Update 1:

We’re told the target has been lifted to $250 million, while at the same time the price guidance for the notes has been lowered to below the initial marketed range.

The notes were first offered to cat bond investors with spread guidance in a range from 3.75% to 4.25%, but we’re now told this has dropped to 3.5% to 3.75%, so below the initial range and representing another cat bond that looks destined for efficient execution to provide attractively priced reinsurance protection to a sponsor.

Update 2:

Allstate eventually secured its new Sanders Re II 2021-1 per-occurrence catastrophe bond at the upsized target of $250 million and with the pricing of the notes fixed at the low-end of reduced guidance, at 3.5%.