US primary insurance carrier Allstate has successfully expanded its new catastrophe bond issuance to the upsized target of $250 million, while at the same time the coupon for the Sanders Re II Ltd. (Series 2021-1) notes was fixed at the low-end of reduced guidance.
Allstate has been aiming to fill a gap in its per-occurrence reinsurance tower before the hurricane season begins, after loss activity eroded some of its protection, which led to this latest cat bond issuance that launched just over ten days ago.
Allstate was aiming to secure around $400 million of reinsurance to fill the gaps in its per-occurrence tower, that was created after loss activity and recoveries. This catastrophe bond issuance is part of that, being an occurrence only deal which is a little unusual for this sponsor.
All of Allstate’s outstanding cat bonds provide both occurrence and aggregate reinsurance protection, so with this new issue being occurrence only, it seems designed to support filling the gap layer in its tower.
When the transaction launched to investors, Allstate was seeking $200 million of reinsurance protection from this Sanders Re II 2021-1 catastrophe bond.
The target was lifted to $250 million and we’re now told that this is where the deal will close, so covering more than half of the gap in Allstate’s occurrence reinsurance tower.
At the same time, the price guidance for the Sanders Re II 2021-1 notes was lowered to below the initial marketed range and we’re now told that Allstate has secured its latest cat bond with pricing at that low-end of reduced guidance, representing a roughly 13% drop in price during marketing of the deal.
The $250 million of notes will provide Allstate with a a roughly four-year source of collateralized reinsurance protection, on an indemnity and per-occurrence basis, covering losses from US named storms, earthquakes, severe weather, wildfires and other perils, but not including Florida.
The covered layer stretches from an attachment point of $3.75 billion and exhausts at $4.15 billion of losses, with the notes having an initial expected loss of 1.1475%.
The notes were initially marketed to cat bond investors with spread guidance in a range from 3.75% to 4.25%. But that range was reduced to 3.5% to 3.75%, so below the initial range, representing another cat bond that looks destined for efficient execution to provide attractively priced reinsurance protection to a sponsor.
Which is how it turned out, with the $250 million of Sanders Re II 2021-1 catastrophe bond notes finally being priced at 3.5%, the bottom of the reduced guidance range, representing a roughly 13% decline in price from the initial mid-point.