US primary insurance carrier Allstate is aiming to upsize its latest catastrophe bond, with the company now targeting up to $125 million of collateralized multi-peril catastrophe reinsurance from the Sanders Re III Ltd. (Series 2022-3) issuance.
At the same time as increasing its target size, which was $100 million when the Sanders Re III 2022-3 cat bond launched to investors earlier in November, Allstate is set to pay more for the coverage, as the risk interest spread has now risen to above the initial guidance range.
As a reminder, Allstate is the first sponsor of a new cat bond since hurricane Ian that may also make recoveries off its outstanding cat bond backed reinsurance arrangements due to that storm.
As a result, it’s interesting to see how the cat bond investor base accepts such a transaction and given Allstate’s appetite to upsize the issuance, it seems the reception was positive, albeit not at the initial price guidance marketed at.
Allstate’s Bermuda based special purpose insurer (SPI) Sanders Re III Ltd. will issue a single tranche of Class A Series 2022-3 cat bond notes to provide the company with a source of US nationwide, excluding Florida, reinsurance coverage against losses from US named storms, earthquakes, severe weather events, wildfires, volcanic eruptions and meteorite impacts, all on a per-occurrence and indemnity trigger basis.
The cover will run across roughly four years and the notes will provide reinsurance against losses from Allstates personal lines property and auto insurance businesses, including from affiliates.
At launch, this new Sanders Re III cat bond was targeted as a single $100 million tranche of Series 2022-3 Class A notes, which have an initial expected loss of 0.6238%. at the base case and they were initially offered to cat bond funds and investors with price guidance in a range from 5.25% to 5.75%.
Now, we’re told the target size of the issuance has been lifted, with up to $125 million of coverage sought by Allstate, but at the same time the price guidance has now been raised and fixed at an elevated 6.25%.
Which is a roughly 14% increase in the coupon at the new, higher level, when compared to the initial marketed mid-point of price guidance.
At this higher spread level, the multiple at market paid to investors in these notes will be 10 times the initial base expected loss, which is particularly high even for post-Ian cat bonds.