US primary insurance giant Allstate is turning to the catastrophe bond market in search of occurrence reinsurance limit to fill out gaps in its program it seems, bringing a $200 million or greater Sanders Re II Ltd. (Series 2021-1) transaction to market.
As we explained last week, as well as making reinsurance recoveries from its aggregate cat bonds due to the impacts of recent US winter storm activity and other peril events, Allstate is also looking to fill a gap in its per-occurrence reinsurance tower before the wind season begins.
In total, Allstate is seeking around $400 million of reinsurance to fill the gaps in its per-occurrence tower created after loss activity and recoveries and the company is now looking to the catastrophe bond market for an occurrence only deal, which is a little unusual for the company.
All of Allstate’s outstanding cat bonds provide both occurrence and aggregate reinsurance protection at the moment, so with this new issue being occurrence only, it seems clear it is designed to supporting the filling of the gap layer in its occurrence tower.
We’re told that Sanders Re II Ltd. will seek to issue a single tranche of Series 2021-1 Class A notes, with a target issuance size of at least $200 million.
The $200 million or more of Class A notes being issued will provide Allstate and subsidiaries with a roughly four-year source of collateralized reinsurance protection, on an indemnity and per-occurrence basis.
The cat bond notes issued by Sanders Re II will be exposed to losses from US named storms, earthquakes, severe weather, wildfires and other perils, we understand. However, the notes will not cover Florida, as Allstate tends to deal with its Florida exposure separately, in a specific reinsurance tower.
The layer occupied by this per-occurrence catastrophe bond from Allstate will be $400 million in size, attaching initially at $3.75 billion and exhausting at $4.15 billion of losses, we’re told.
Hence, at $200 million in size initially, there is ample room for this cat bond to expand in size, even doubling, should investor demand allow.
The $200 million of Class A notes will have an initial expected loss of 1.1475%, our sources said, while they are being offered to cat bond investors with spread guidance in a range from 3.75% to 4.25%.
Given the strong execution seen in recent catastrophe bond issues, it will be interesting to see how this deal from Allstate is received, particularly as the insurer has made recoveries from its cat bonds recently.
Based on where Allstate intends this new occurrence catastrophe bond to attach and the fact this closely fits the existing gap fill layer in its occurrence reinsurance tower, it seems possible the insurer could fill that entire gap from the cat bond market, if investors show this deal a strong reception.