US primary insurance player Allstate has now secured an upsized $370 million of Florida focused multi-peril reinsurance protection from the capital markets with its latest catastrophe bond, as the Sanders Re III Ltd. (Series 2023-2) issuance has now been priced.
Allstate returned to the catastrophe bond market at the beginning of May, with a target to secure at least $250 million of reinsurance for its Florida-focused underwriting subsidiaries Castle Key Insurance, Castle Key Indemnity, as well as National General and Northlight brand entities.
Sponsoring a May cat bond issuance to cover Florida specifically has been a regular feature of Allstate’s reinsurance arrangements and in 2023 the insurer has secured an upsized slice, with these Sanders Re III 2023-2 notes now securing the company $370 million of cover, we’re told.
Which for Allstate is a significant increase on the reinsurance protection from on its soon to mature $200 million 2020 Florida-focused cat bond with this new deal.
Sanders Re III Ltd. will issue two tranches of Series 2023-2 cat bond notes to provide the now $370 million of Florida focused catastrophe reinsurance protection against the perils of Florida named storm, earthquake, severe weather, wildfire, volcanic eruption, and meteorite impact.
The issuance features one coupon paying, more remote risk, tranche of notes providing three years of protection, while a second is a far riskier zero-coupon layer with a one-year term.
Both tranches are being issued, with the second a particularly risky near working-layer of the reinsurance tower, perhaps one of the riskiest in cat bond form ever seen.
The Class A tranche of notes are the coupon structured issuance, and were originally targeting $250 million or more in indemnity, per-occurrence based protection for Allstate, structured to cascade as other reinsurance beneath is eroded, across a three-year term to the end of May 2026.
We’re now told the Class A tranche of notes have been finalised to provide an upsized $300 million in reinsurance protection to Allstate, with their initial expected loss of 0.91%. They were first offered to investors with spread price guidance in a range from 7.75% to 8.50%, but we’re now told the spread was priced at 8%, so towards the lower-end of the guidance range.
The second layer issued are the Class B zero-coupon tranche of notes, a far riskier proposition designed to provide Allstate with indemnity and per-occurrence protection, across the same covered perils in Florida and running to the end of May 2024.
The Class B notes did not come with size guidance, but we’re now told there will be $70 million of them issued. They come with an initial expected loss of 19.08%, showing just how risky they are by comparison to the A’s. Unfortunately we do not have the pricing for this tranche at this time, but we will update the Deal Directory entry should we source that in future.
This is a strong result for Allstate, as the insurer has maximised the Class A tranche opportunity to fill that layer of its reinsurance tower, while securing its pricing towards the lower-end.
In addition, the fact it has placed the zero-coupon, much riskier tranche at all is testament to the range of appetites in the cat bond investment marketplace, as well as the long-standing nature of Allstate’s participation in the ILS market.
You can read all about this Sanders Re III Ltd. (Series 2023-2) from Allstate and every other catastrophe bond issuance in the extensive Artemis Deal Directory.
Details of every cat bond from Allstate can be found in the Deal Directory.
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