Sanders Re II Ltd. (Series 2021-2)

US primary insurer Allstate has returned with a new catastrophe bond and is seeking $350 million or more of both per-occurrence and aggregate protection from this latest Sanders Re II transaction.

This latest transaction, its second of 2021, will see the Bermuda based special purpose insurer (SPI) Sanders Re II Ltd. seeking to issue two tranches of notes, the sale of which will provide collateral to underpin new reinsurance agreements between the structure and Allstate, to channel the capital markets backed funding to its reinsurance tower.

The currently slated $350 million of notes will provide Allstate with multi-peril US reinsurance protection across a three year and four month term, with the first four months only covering the insurer on a per-occurrence basis and then after that the remaining three years providing it with both per-occurrence and aggregate reinsurance protection, sources told Artemis.

The Series 2021-2 notes issued by Sanders Re II will provide Allstate with cover against losses from the named perils of US named storm, earthquake, severe weather, wildfire, volcanic eruption, meteorite impact, across all states except for Florida, all on an indemnity trigger basis.

There’s been a slight tweak to the terms with Allstate’s latest cat bond, in that all the perils are explicitly named, where as in recent years Allstate’s Sanders Re cat bonds have all featured an “other perils” class, which has included a wider range of additional loss events.

With the insurance-linked securities (ILS) market and more broadly reinsurance and retrocession, continuing to tighten up on a named peril focused basis, especially in aggregate covers, this seems to be a reflection of that and is encouraging to see.

Sanders Re II Ltd. will offer a $200 million tranche of Class A notes will provide Allstate with per-occurrence reinsurance protection right through the more than three year risk period, attaching at $3.75 billion of losses and exhausting at $4 billion, we understand.

The Class A notes will have an initial expected loss of 0.8457% and are being offered to investors with coupon guidance in a range from 3% to 3.75%.

Meanwhile, a $150 million Class B tranche of notes will provide Allstate with per-occurrence protection for the first four months, up to the end of April 2022 and then both per-occurrence and annual aggregate reinsurance across the next three years, so aligning the coverage term with the insurers aggregate reinsurance tower.

The Class B tranche of notes attach at the same $3.75 billion while on a per-occurrence basis, we understand, exhausting at $3.975 billion, but then also attach at $2.5 billion on an aggregate basis and span a $500 million layer to $3 billion for those three annual risk periods and have an initial expected loss of 1.0869%.

The Class B notes are offered with price guidance in a range from 2.75% to 3.25% for the initial per-occurrence only term and then 11.5% to 12.5% for when the aggregate reinsurance protection also kicks in.

These are both relatively high up in Allstate’s reinsurance tower, for catastrophe bonds.

There is some room for both tranches to upsize, should investor demand allow.

Update 1:

This transaction upsized to $400 million, with the growth all coming from the per-occurrence section.

The pricing also diverged between the per-occurrence and aggregate reinsurance sections, as cat bond investors continue to demand a higher spread for annual aggregate coverage.

The Class A notes hit $250 million in size and their pricing was fixed at 3.25%, so below the initial mid-point.

But the Class B notes, which remained at $150 million, saw their pricing fixed at 3% for the per-occurrence only term and then at the upper-end of guidance at 12.5% for when the notes will provide aggregate reinsurance cover as well.