U.S. primary insurer Allstate is returning to the catastrophe bond market with a second Sanders Re issuance. Sanders Re Ltd. (Series 2014-1) is a $600m or larger U.S. named storm and earthquake cat bond structured across three, perhaps four tranches.
Allstate clearly wants to join the cat bond sponsors who are enjoying such attractive issuance conditions in the capital markets right now. This, its second Sanders Re issuance, is significantly larger than the $350m Sanders Re Ltd. (Series 2013-1) deal Allstate sponsored last May right from the launch at $600m and it has an optional extra tranche of notes which could turn this into another very large cat bond
Sources report that with the Sanders Re 2014-1 cat bond Allstate is seeking to secure three layers of fully-collateralized reinsurance protection from U.S. named storms and earthquakes (including fires following) on a state-weighted PCS industry loss and per-occurrence basis.The reinsurance protection is for a portion of Allstate’s personal and auto lines of business.
The U.S. named storm (so tropical storm and hurricane) cover is across all U.S. hurricane exposed states, but with the sole exception of the hurricane prone state of Florida. The earthquake protection is for the states of California, New York and Washington, Artemis understands.
This transaction will see Sanders Re issue three tranches of Series 2014-1 notes, two tranches providing four years of cover and the third having a five-year term. All three tranches are exposed to both perils on a per-occurrence basis, with differing attachment probabilities and levels of expected loss.
A $250m Class B tranche of notes, providing four years of protection, has an attachment probability of 0.81%, an expected loss of 0.72% and an exhaustion probability of 0.64%. The notes attach at reported index losses of $3.83 billion and exhaust at $4.18 billion.
The $100m Class C tranche of notes, providing four years of protection, has an attachment probability of 0.97%, an expected loss of 0.87% and an exhaustion probability of 0.81%. These notes attach an index level of $3.499 billion with exhaustion set at $3.83 billion.
The $250m Class D tranche, providing five years of protection, has an attachment probability of 1.27%, an expected loss of 1.13% and an exhaustion probability of 1.04%. These notes attach at reported index losses of $2.954 billion up to an exhaustion point of $3.436 billion.
According to Artemis’ sources, Allstate may elect to issue a fourth Class A tranche of notes if the issuance is well received by investors. This Class A tranche, which we understand is not yet being marketed to investors, would sit below the Class B tranche with an initial expected loss of 0.61%. Of course that means that a $600m starting point for Sanders Re 2014-1 could be upsized considerably if Allstate chooses.
But back to the three tranches which are being marketed right now. The Class B tranche of notes is being offered with initial guidance of a coupon range from 2.75% to 3%. The Class C tranche, which is slightly riskier, is being offered with a coupon range of 3% to 3.5%. The final Class D tranche, which is again holding slightly more risk, is offered at a range of 3.5% to 4%.
Should the Class A tranche be launched it would likely be offered with pricing guidance slightly below the level of the Class B notes.
We’re told that Aon Benfield Securities, Goldman Sachs and Deutsche Bank are all providing joint structuring agent and bookrunner services, while AIR Worldwide is the risk modelling firm for this transaction.
The Sanders Re 2013 cat bond is still in force for another three years, having had a four-year term, which means that if Sanders Re 2014-1 completes successfully at $600m or greater Allstate will have at least $950m of reinsurance protection in catastrophe bond form sourced from the capital markets.
The Sanders Re 2014-1 cat bond is again interesting, as Allstate’s Sanders Re 2013 deal was, because it includes coverage against industry losses for automobile insurance business, which is unusual in the cat bond market. This may be just the second cat bond to do so, which could encourage other large auto insurers to look at this structure with a view to replicating it.
That’s all the detail we have managed to source on Sanders Re Ltd. (Series 2014-1). We’ll keep you updated as it comes to market and you can read all about it and every other catastrophe bond, including all those sponsored by Allstate, in the Artemis Deal Directory.
Q1 2014 Catastrophe Bond & ILS Market Report – A Record Quarter
This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the first-quarter of 2014, looking at the new risk capital issued and the composition of the transactions completed during Q1 2014. Download your copy here.