US primary insurance carrier Allstate is back in the catastrophe bond market with its third deal of this year, seeking at least $100 million of reinsurance from a Sanders Re III Ltd. (Series 2022-3) issuance that targets nationwide US, ex-Florida, multi-peril reinsurance protection for the company.
This new cat bond from Allstate provides another glimpse at the post-hurricane Ian cat bond market pricing environment and this time from a sponsor that may make reinsurance recoveries from its cat bond program for that storm, as we reported over a fortnight ago.
Allstate said then that it anticipates around $305 million of reinsurance recoveries from its tower after hurricane Ian, which could eat into some lower cat bond layers.
Demonstrating its appetite to keep cat bonds at the core of its reinsurance arrangements, we’ve learned that Allstate is back for a new catastrophe bond, and the carriers’ Bermuda based special purpose insurer (SPI) Sanders Re III Ltd. will issue a single tranche of Class A Series 2022-3 cat bond notes.
The notes will be sold to cat bond funds and investors to provide collateral to underpin a new reinsurance agreement between the issuer and Allstate, channelling capital markets backed funding into its reinsurance tower.
The notes will provide Allstate with a source of US nationwide, excluding Florida, 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.
Losses from Allstates personal lines property and auto insurance businesses, including from affiliates, are covered.
The coverage will run across roughly four years and four months, with a short risk period running to April 2023, then four annual risk periods running beyond that, to the end of March 2027.
The targeted at least $100 million of Series 2022-3 Class A notes that Sanders Re III is set to issue will attach their reinsurance coverage at $3.75 billion of losses to Allstate, covering a percentage of a $400 million layer of Allstate’s tower, to exhaustion at $4.15 billion, we understand.
The initial modelled, attachment probablity is said to be 0.76%, while the initial expected loss for the notes, at the base case, is 0.6238%.
The notes are being offered to cat bond funds and investors with price guidance in a range from 5.25% to 5.75%, sources said.
At the mid-point of pricing, so a coupon of 5.5%, the multiple-at-market would be 8.8 times the base expected loss.
We can compare these new Allstate cat bond notes to the Class A per-occurrence tranche of its Sanders Re II Ltd. (Series 2021-2) that were issued last November.
Those 2021-2 Class A notes covered the same perils, attached at $3.75 billion of losses and had a base expected loss of 0.8457%, but priced to pay investors a coupon of 3.25%, so had a multiple-at-market at issuance of just 3.8 times the EL.
So, these new 2022-3 cat bond notes will pay a significantly higher multiple, the latest indication of the much higher spread environment for new cat bond issues after hurricane Ian.