U.S. primary insurance company Allstate launched its fourth Sanders catastrophe bond on Friday, seeking one of the longest coverages that the cat bond market has provided. The $130m Sanders Re Ltd. (Series 2015-1) is looking for a 7 year cover for multiple U.S. perils for the insurer.
Allstate returned to the cat bond market in 2013, after an almost five-year hiatus, with the Sanders Re special purpose insurer, since when it has secured a significant proportion ($1.3 billion) of its reinsurance cover through the capital markets.
The new transaction shows that Allstate is prepared to continue to tap the capital markets for fully-collateralized reinsurance protection and that the insurer wants to extend the coverage it receives.
With Sanders Re Ltd. (Series 2015-1) Allstate is seeking $130m of protection, for itself and affiliates, over an extended 7-year term for the perils of U.S. named storms (excluding Florida), U.S. earthquake (CA, NY, SC, WA), volcanic eruption (excluding Florida) and meteorite impact (excluding Florida).
The inclusion of volcanic eruption and meteorite impact is new, Allstate has not included them in its cat bonds before, showing that the insurer is watching what other primary insurers package into their deals (USAA and more recently Chubb).
It is interesting that the insurer has excluded Florida from those perils, it has done so before for U.S. wind, particularly as a meteorite impact on Florida could potentially cause damage and losses across a much wider swathe of the United States. However the meteorite and volcanic risk is again a very low contribution to expected losses for the deal.
The risk period of 7 years is perhaps the most telling factor, as Allstate seeks to lock in coverage over a longer term. The cat bond features redemption clauses, allowing Allstate to redeem the issued notes early for a premium, meaning that should the reinsurance and ILS market change dynamic again the insurer can close this deal down if better options emerge.
The coverage provided by the Sanders Re 2015-1 Class C notes will be on a per-occurrence basis and the deal utilises a state-weighted PCS index of personal and auto losses, Artemis understands.
The cat bond notes attach at an index level of $3.624 billion of losses and exhaust coverage at $4.07 billion. That equates to an initial base-case attachment probability of 1.08%, an exhaustion probability of 0.87% and an expected loss of 0.97%.
In terms of pricing for the notes, sources said that it is being offered with a coupon range of 362.5 bps (3.625%) to 387.5 bps (3.875%). This is the first cat bond we can recall seeing priced down to a half a basis point, perhaps reflecting pricing moving less than in previous years as the market approaches a floor level, where every half a point gained counts. At the lowest end of that pricing range the coupon would work out to be a multiple of 3.7 times the base expected loss.
The transaction features a variable reset, allowing Allstate to adjust the coverage provided slightly, no surprise given the long duration of the protection from this cat bond.
Allstate continues to increase its use of the capital markets to access collateralized reinsurance protection for tail-risks in its portfolio. Interestingly, this latest Sanders Re 2015-1 cat bond is likely to complete at the $130m launch size, sources said, as the documentation notes that it will not upsize.
Aon Benfield Securities and Deutsche Bank Securities are joint structuring agents and bookrunners, while Goldman Sachs is co-manager. AIR Worldwide is providing risk modelling services.
The cat bond is scheduled for an April completion, so it will not count towards the first-quarter issuance total. We will update you as Sanders Re Ltd. (Series 2015-1) comes to market and you can read all about it, and Allstate’s previous catastrophe bonds, in the Artemis Deal Directory.