Allied World targets $325m catastrophe bond renewal with 2001 CAT Re 2026-1 issuance

Allied World Assurance Company (AWAC), the global insurance and reinsurance company that is part of the Fairfax Financial group, is back in the catastrophe bond market for a renewal and expansion of its protection with a $325 million 2001 CAT Re Ltd. (Series 2026-1)  transaction, Artemis understands.

Allied World sponsored its first catastrophe bond in November 2020, securing $210 million of multi-peril retrocession to cover three calendar years with a 2001 CAT Re 2020-1 issuance.

The company returned and renewed that protection with a slightly larger $275 million 2001 CAT Re 2023-1 cat bond, with this transaction now set to mature at the end of this year.

Now, it’s encouraging to learn from sources that Allied World is back again and looking to increase its catastrophe bond protection while also layering the coverage across multiple tranches of notes for the first time, with this Series 2026-1 offering.

Allied World’s first two cat bond sponsorships had been single tranche issuances, but this third cat bond under 2001 CAT Re Ltd. sees the company with a three tranche offering that will bring the capital markets more deeply into its retrocessional reinsurance tower.

Bermuda based special purpose insurer (SPI) 2001 CAT Re Ltd. is again being used for Allied World’s third catastrophe bond sponsorship.

2001 CAT Re Ltd. is offering three tranches of Series 2026-1 notes that will be sold to cat bond investors and the proceeds used to collateralize the underlying retro reinsurance arrangements, with the protection to benefit Allied World and certain underwriting subsidiaries including its Lloyd’s syndicate 2232, its European and US underwriting arms.

The initial target is to secure $325 million of limit across the three tranches, with the Series 2026-1 notes designed to protect Allied World and subsidiaries for significant losses from U.S named storms, U.S. and Canada earthquakes, and European windstorm risks, the same perils as the soon to mature 2023 cat bond.

This new 2001 CAT Re 2026-1 cat bond will provide Allied World with annual aggregate protection across three annual risk periods from January 1st 2027, with the notes exposed to industry loss events that breach predefined weighted index trigger points, as measured by PCS and PERILS.

Interestingly, Allied World’s first cat bond in 202o was an annual aggregate deal, but its second issuance in late 2023 was a per-occurrence structure.

So with this new 2001 CAT Re 2026-1 cat bond, Allied World has reverted back to seeking frequency style retrocessional protection, to cover the eventuality that multiple large industry losses affect its underwriting companies.

In addition, this new cat bond for Allied World also brings tranches of notes to market with a higher expected loss, as the company looks to bring cat bond coverage further down the risk tower.

All three tranches of Series 2026-1 cat bond notes that 2001 CAT Re Ltd. is offering will feature a $50 million franchise deductible, important to note again this is a weighted industry loss index trigger deal.

A $225 million Class A tranche of notes would attach their coverage at an index value of $450 million and exhaust coverage at $675 million. They come with an initial attachment probability of 7.47%, an initial base expected loss of 5.4% and are being offered with price guidance for an initial risk interest spread of between 9% and 9.5%, we are told.

A $50 million Class B tranche of notes would attach their coverage at an index value of $375 million and exhaust coverage at $450 million. They have an initial attachment probability of 9.98%, an initial base expected loss of 8.7% and are being offered with price guidance for an initial risk interest spread of between 14% and 15%.

The final $50 million Class C tranche attach at an index value of $300 million and exhaust coverage at $375 million. They have an initial attachment probability of 13.54%, an initial base expected loss of 11.69% and are being offered with price guidance for an initial risk interest spread of between 19% and 20%, sources said.

So each of the tranches sit atop another, meaning the protection spans a much wider amount of Allied World’s reinsurance tower than its previous cat bonds did.

With some higher risk and return tranches of notes on offer, it will be interesting to see how investor appetite evolves with this offering, given the spreads available are higher than most other cat bonds currently in the marketplace.

You can read all about this new 2001 CAT Re Ltd. (Series 2026-1) catastrophe bond and view details of more than 1,250 other cat bond transactions in the Artemis Deal Directory.