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Sanders Re Ltd. (Series 2018-1)

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Sanders Re Ltd. (Series 2018-1) – At a glance:

  • Issuer: Sanders Re Ltd. (Series 2018-1)
  • Cedent / sponsor: Allstate
  • 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: U.S. (ex Florida & New Jersey) named storm, earthquake, severe weather, fire, other perils
  • Size: $500m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Mar 2018

Sanders Re Ltd. (Series 2018-1) – Full details:

U.S. primary insurance company Allstate is back with an innovative catastrophe bond issue which will be the firms sixth successful transaction under the Sanders Re name and the eighth cat bond transaction sponsored by Allstate that we have listed in our Deal Directory.

With this latest cat bond Allstate’s special purpose vehicle Sanders Re Ltd. will issue a single tranche of Series 2018-1 Class A cat bond notes, targeting a $400 million issue, which will be sold to qualified investors in order to collateralize underlying reinsurance agreements with the sponsor. The notes will also cover Allstate subsidiaries we understand.

We’re told that the Sanders Re 2018-1 cat bond notes will provide Allstate with four-years of reinsurance cover against losses to its personal lines book from multiple U.S. perils, including named storms, earthquakes, severe weather, fires and so-called other perils. The coverage will not include Florida and New Jersey, sources said.

The notes will feature an indemnity trigger, but the coverage they provide will be both on a per-occurrence and an annual aggregate basis, a novel structure affording the insurer two sections of reinsurance protection within a single tranche of notes. We understand both layers will provide $500 million of coverage, so there is a chance this cat bond upsizes while marketing.

As a result of this novel feature, we understand the multiple paid by this cat bond will be relatively high to compensate investors for the dual occurrence and aggregate sections of risk.

The Sanders Re 2018-1 cat bond notes will have an initial expected loss of 0.64% and are being offered to investors with spread guidance of 5.5% to 6.25%, we’re told.

Also noteworthy are the naming of perils, with severe weather possibly designed to include more than just severe thunderstorm risks, fire more than just wildfire, and other perils a catch-all likely able to capture losses from any perils Allstate and subsidiaries are affected by over the term of the catastrophe bond deal.

These expansions of coverage likely make the Sanders Re 2018-1 cat bond more commensurate with the reinsurance protection Allstate secures from its traditional program.

Update 1:

Allstates Sanders Re 2018-1 catastrophe bond issuance looks set to upsize before pricing, with the latest indications showing the deal at $500 million.

Investors response to the novel structure appears to have been robust, as the transaction is now set to issue a $500 million tranche of notes, upping the reinsurance coverage Allstate will receive from it by 25%.

Investors are set to be compensated for the dual coverage approach of this catastrophe bond it seems, with the expected loss set at an initial 0.64% the multiple paid by the notes is much higher than typical U.S. multi-peril deals.

The price guidance was set in a range from 5.5% to 6.25% at launch, but we’re told this has now dropped to the bottom of guidance at 5.5%, giving a multiple of roughly 8.6 times the expected loss, which is particularly high and clearly designed to compensate investors for the two sections of reinsurance cover their capital and this cat bond will provide.

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