Gator Re Ltd.

The Gator Re cat bond sees Florida-based primary insurance group American Strategic Insurance seeking a multi-year, fully-collateralized source of reinsurance protection from capital markets investors through the sale of a single tranche of Series 2014-1 cat bond notes. The deal is being marketed with a preliminary size of $125m.

The Series 2014-1 notes issued by Gator Re, a Bermuda domiciled SPI, will be sold to collateralize reinsurance contracts providing American Strategic Insurance and some named subsidiaries with fully-collateralized protection for U.S. named storms (so tropical storms and hurricanes) and U.S. severe thunderstorm risks.

The Gator Re cat bond is an indemnity transaction, so providing cover for the actual losses that American Strategic Insurance suffers. The term for the Gator Re cat bond will be approximately 2 years 9 months, with maturity scheduled for the end of December 2016.

The cover is split into two sections. The first is exposed to U.S. named storms and severe thunderstorms on a per occurrence and indemnity basis, the second is exposed to just severe thunderstorms on an annual aggregate and indemnity basis. Both of these sections share the limit of the Series 2014-1 notes.

Named storm coverage is for the typical U.S. states affected by hurricanes and tropical storms, east coast, Gulf coast and Florida, while severe thunderstorm coverage is for the 48 U.S. contiguous states and the District of Columbia.

The per-occurrence layer, referred to as Section A, has an attachment point of $40m and an exhaustion point of $240m. The aggregate layer, referred to as Section B, has an attachment point of $150m and an exhaustion point of $350m. With the layer being $200m in size it would not be surprising if the Gator Re cat bond upsized to $200m by close.

It would seem that the Gator Re cat bond will give American Strategic Insurance protection both for major losses from named storms and thunderstorms, through the per-occurrence layer, while an accumulation of attritional thunderstorm losses across an annual risk period will be covered in the aggregate layer’s protection.

The Gator Re notes have an attachment probability of 4.87%, an expected loss of 1.5% and an exhaustion probability of 0.58% at launch. Projected figures have also been calculated based on how American Strategic Insurance’s portfolio may look later in 2014, which sees the attachment probability rise to 6.47% and the expected loss to 1.76%.

The Gator Re Series 2014-1 notes are being marketed with pricing guidance of 7% to 7.75% Artemis understands.

Update 1:

Artemis understands that thanks to strong investor demand, as expected this cat bond has been oversubscribed at its initial size like almost every other, the Gator Re cat bond is now being pitched at $200m in size, a 60% upsizing.

At the same time, again as expected in the current cat bond issuance environment, the price guidance has been reduced for the deal. When it launched, Gator Re was being marketed with pricing guidance of 7% to 7.75% but this has now dropped to below that range and narrowed to guidance of 6.5% to 7%.

If the deal prices at the lower end of that reduced range, which based on all recent cat bonds is highly possible, then the drop in pricing American Strategic Insurance benefits from could be as high as 12% (from the mid-point of the original guidance range).

The Gator Re cat bonds risk period has also been clarified. The per-occurrence layer, understood to be referred to as Section A, risk period will run from 1st June 2014 to 31st December 2016, so providing reinsurance protection for three U.S. wind seasons. The Section B layers aggregate protection will run from the deals completion in March 2014 to 31st December 2016, so covering three U.S. severe thunderstorm seasons.

Update 2:

At final pricing sources tell Artemis that the pricing settled at the bottom of that reduced range at 6.5%. That is a 12% reduction in pricing from the mid-point of the originally marketed range.

Update December 2016:

Qualifying estimated losses for the Gator Re catastrophe bond reached $195 million at the end of November 2016, when the re-set attachment point was just $175 million, suggesting a $20 million loss of principal to investors.

The Gator Re cat bond note priced down in the secondary market and an extension event notice was served, in order to allow loss development to be finalised before any final loss total would be revealed to investors in the notes.

Update January 2017:

An extension notice has been filed for the stricken Gator Re Ltd. catastrophe bond transaction that suggests a partial repayment event and retention of $35 million, which is higher than the figure anticipated after the November loss report was released, providing a buffer for further development.

Update November 2017:

The Gator Re cat bond has finally been matured, as of the 7th November and its notes delisted. This means the final principal was likely paid out to American Strategic at that time.