American Strategic Insurance Group has returned to the catastrophe bond market seeking a $200 million source of capital market backed reinsurance protection for U.S. named storm and severe thunderstorm risks from a Bonanza Re Ltd. (Series 2016-1) deal.
This is the insurers second visit to the capital markets for reinsurance coverage in catastrophe bond form, following on from the much discussed Gator Re Ltd. cat bond transaction which has been very close to the trigger a number of times, perhaps no more so than now when the Gator Re deal has reached over 94% of the way to the attachment point.
This new Bonanza Re Ltd. (Series 2016-1) cat bond sees American Strategic looking for per-occurrence coverage, when the Gator Re cat bond was structured on an annual aggregate basis and covering the kind of frequency risk most suitable to such deals.
With Bonanza Re 2016-1, the insurer is seeking to secure a targeted $200 million of fully collateralised reinsurance coverage using a top and drop indemnity structure, to provide reinsurance protection against major catastrophe events that could impact the firm. The term of the coverage would be two and a half years, running from June 2017 to the end of December 2019.
Two classes of notes are on offer. A Series 2016-1 Class A tranche being marketed under the Bonanza Re Ltd. special purpose insurer seeks $150 million of investor capital to provide American Strategic with coverage against both U.S. named storm, for all tropical storm and hurricane exposed states, and severe thunderstorm risk for the 48 continental states and the District of Columbia.
Meanwhile a $50 million Series 2016-1 Class B tranche of notes seeks purely U.S. named storm coverage, for the same covered area as Class A, but are a riskier tranche of notes with a higher attachment probability.
The $150m of Class A notes, which cover both U.S. named storm and thunderstorm risks, have an attachment probability of 2.22%, attaching at $50m of qualifying indemnity losses and exhausting at $150m, and an expected loss of 1.52%, we understand. This tranche is being offered to investors with price guidance of between 4% and 5%.
The $50m Class B U.S. named storm only tranche are riskier with an attachment probability of 4.08%, attaching at $25m and exhausting at $75m, and an expected loss of 2.19%, while the price guidance for this set of notes is between 5.5% and 6%.
With both tranches offered as indemnity per-occurrence, with a top and drop feature, this moves away from the Gator Re deal which was aggregate in nature and so exposed investors to attritional severe thunderstorm risks such as hail events.
This Bonanza Re cat bond covers more severe catastrophe events, meaning that it would take more meaningful single event impacts to American Strategic and its subsidiaries for any investor to face a loss.
Willis Capital Markets & Advisory are acting as the sole structuring agent and bookrunner for this cat bond transaction, while AIR Worldwide is the risk modelling agent.