Sanders Re III Ltd. (Series 2023-2)

Allstate has returned for a Florida focused catastrophe bond issuance, seeking multi-peril reinsurance protection from the capital markets for its subsidiaries operating in the state.

Allstate often sponsors a Florida focused catastrophe bond in May, having last done so a year ago and before that in 2020, 2017 and 2014.

We understand that for this latest Sanders Re catastrophe bond, Allstate is using its Bermuda based special purpose insurer (SPI) Sanders Re III Ltd.

The SPI will target the issuance of two tranches of Series 2023-2 cat bond notes, aiming for at least $250 million of Florida focused catastrophe reinsurance protection through a coupon paying more remote tranche of notes, while also testing market appetite for a far riskier zero-coupon layer with a one-year term, we’re told.

Allstate is targeting fully-collateralized reinsurance protection against the perils of Florida named storm, earthquake, severe weather, wildfire, volcanic eruption, and meteorite impact with this new Sanders Re III 2023-2 catastrophe bond.

The coverage will be across personal lines property business only, including homeowner, condo, renter and boat owner.

As with all of its Florida focused cat bonds, it’s assumed the ultimate beneficiaries of the reinsurance protection will be Allstate’s Florida-focused underwriting subsidiaries Castle Key Insurance, Castle Key Indemnity, as well as National General and Northlight brand entities.

Sanders Re III Ltd. is seeking to issue two tranches of notes, with at least $250 million of protection being sought.

The first, a Class A tranche of notes, is the coupon structured issuance, designed to provide Allstate $250 million or more in indemnity, per-occurrence based protection, structured to cascade as other reinsurance beneath is eroded, across a three-year term to the end of May 2026.

The Class A notes have an attachment point at $360 million, exhausting at $660 million of Allstate’s Florida reinsurance tower, we’re told, giving them an initial attachment probability of 1.09%, an initial expected loss of 0.91% and they are being offered to investors with spread price guidance in a range from 7.75% to 8.50%, sources said.

The second layer, a Class B zero-coupon tranche of notes, are far riskier and are designed to provide Allstate an as yet unsized amount of indemnity and per-occurrence protection, across the same covered perils in Florida and running to the end of May 2024.

The Class B notes have a much lower attachment point at just $40 million, exhausting at $110 million of Allstate’s Florida reinsurance tower, we understand, which gives them an initial attachment probability of 26.55% and an initial expected loss of 19.08%. We’re told there is no price guidance for these zero-coupon notes, at this time.

Update 1:

Allstate eventually secured an upsized $370 million of reinsurance from this new Florida-focused Sanders Re III 2023-2 catastrophe bond deal.

The Class A tranche were finalised at $300 million in size, so will cover the full layer of Allstate’s Florida reinsurance tower. Their coupon was fixed for a spread of 8%, so within the lower-half of initial guidance.

The Class B single-year zero-coupon notes were finalised to provide $70 million of reinsurance to a much lower-down, near working layer of the tower. Unfortunately we do not have the pricing for this tranche at this time, but we will update this entry should we source it in future.