Sanders Re III Ltd. (Series 2023-1)

This will be the first catastrophe bond to be sponsored by Allstate of 2023 and sees the company returning to seek three layers of collateralized and multi-year catastrophe reinsurance protection, covering multiple perils across the United States, except for in the state of Florida.

Allstate’s Bermuda based special purpose insurer (SPI) Sanders Re III Ltd. is targeting the issuance of three tranches of Series 2023-1 cat bond notes, we’re told.

The notes will provide Allstate with a source of US nationwide, except Florida, coverage against losses from US named storms, earthquakes, severe weather events, wildfires, volcanic eruptions and meteorite impacts, all on an indemnity trigger basis.

Losses from Allstates personal lines property and auto insurance businesses, including from affiliates, are covered, we’re told.

A $100 million tranche of Class A notes will provide four-years of per-occurrence cover above an attachment of $4.75 billion of losses, giving them an initial attachment probability of 1.02%, base expected loss of 0.9382%, and as a result these are offered with price guidance of 5.75% to 6.5%, we understand.

A $125 million tranche of Class B notes will provide four years of annual aggregate reinsurance across a $500 million layer attaching at $3.598 billion of losses, we understand, giving them an initial attachment probability of 1.02%, base expected loss of 0.7402%, and as a result these are offered with price guidance of 15% to 15.75%.

The final Class C tranche are a one-year, zero-coupon set of notes, that would provide occurrence cover across a $250 million layer attaching at $750 million of losses. These are far riskier, having an initial attachment probability of 28.13% and expected loss of 18.63%. There is no price guidance at this stage, we’re told, but if successful this would be one of (if not) the riskiest layers of cat bond notes ever sponsored by Allstate and the price would be expected to be high as a result.

With that final tranche, it seems Allstate is testing out the cat bond markets appetite for a much lower-layer of risk, likely given the challenging reinsurance market environment it is likely to face in renewing lower-layer coverage.

Update 1:

We’re told the riskier, zero-coupon and one-year Class C tranche of notes are now unlikely to be placed with this syndication, suggesting that layer of risk will either be placed privately or in the traditional reinsurance market.

For the other two tranches of notes, the Class A occurrence remains at $100 million while its price guidance has been lowered and fixed at 5.75%, so the bottom end of initial guidance.

The Class B annual aggregate notes are now targeted as between $125 million and $150 million, while their price guidance has narrowed towards the upper-end at 15.5% to 15.75%.