Returning to the catastrophe bond market again for 2020, U.S. primary insurance giant Allstate is seeking a new $250 million or greater source of U.S. multi-peril property catastrophe reinsurance through sponsorship of a just launched Sanders Re II Ltd. (Series 2020-1) cat bond transaction.
This second catastrophe bond transaction under Allstate’s newest special purpose insurer Sanders Re II Ltd. will target both occurrence and aggregate reinsurance protection for the insurer, as its 2019 cat bond transaction did.
Last year’s arrangement saw one tranche of notes pulled and the coverage placed in the traditional reinsurance market, so it’s always possible Allstate could elect to do similar in 2020 if investor appetite for the Sanders Re II 2020 cat bond is not at the level (or pricing) it is looking for.
Allstate has been a regular sponsor of catastrophe bonds as part of its reinsurance program arrangements since at least 2007. In that time the insurer has sponsored at least ten cat bond transactions, with this new deal set to be the eleventh we have listed in our extensive catastrophe bond Deal Directory.
For this new deal, Sanders Re II Ltd. will seek to issue two tranches of notes that will be sold to cat bond investors and the proceeds used to collateralise reinsurance arrangements between the issuer and Allstate.
The notes will provide Allstate with a four-year source of U.S. multi-peril catastrophe reinsurance protection, covering certain losses from U.S. (excluding Florida) named storms, earthquakes, severe weather events, fires, and losses from other perils, sources said.
Reinsurance protection from the new cat bond will cover certain losses to Allstate’s personal lines property and auto books of business.
Coverage will be on an indemnity trigger basis and the new Sanders Re II cat bond will provide Allstate with both per-occurrence and aggregate reinsurance protection, we understand.
A $150 million Class A tranche of Series 2020-1 notes issued by Sanders Re II will provide per-occurrence protection, attaching at $2.75 billion of losses to Allstate, giving them an initial base expected loss of almost 0.95%, we understand.
The Class A notes are being offered to cat bond investors with price guidance in a range from 4.25% to 4.75%, we’re told.
A $100 million Class B tranche of notes will provide both per-occurrence and annual aggregate reinsurance protection, again attaching at $2.75 billion of losses to Allstate on an occurrence basis and $3.976 billion on an aggregate basis, giving the notes an expected loss at the base case of 0.92% on a combined basis, we understand.
We’re told the price guidance for the Class B tranche of Sanders Re II Ltd. Series 2020-1 notes is 12% to 13%, making this clearly the riskier layer of this cat bond which is driven by the aggregate exposure.
As with other recent cat bonds from Allstate, the design of the structure will provide valuable reinsurance protection to the insurer, slotting alongside its traditional layers of protection in the tower and being available to respond to both large single catastrophe loss events as well as attrition due to multiple smaller or frequency catastrophe losses.
We’ll update you as this new Sanders Re II Ltd. (Series 2020-1) catastrophe bond transaction from Allstate comes to market and you can read about this and every other cat bond in the Artemis Deal Directory.