US primary insurance giant Allstate is seeking Florida focused reinsurance coverage from a catastrophe bond for the first time in two years, with a $250 million or greater Sanders Re III Ltd. (Series 2022-2) multi-peril issuance now in the market.
Allstate has previously sought out Florida focused catastrophe bond backed reinsurance protection for its subsidiaries in the state from the capital markets every three years since 2014.
But this time, Allstate is bringing a new Florida cat bond after just two years, with its previous $200 million Sanders Re II Ltd. (Series 2020-2) deal still in-force until May 2023.
So it looks like the insurer is set to build out more capital markets backed coverage in its Florida reinsurance tower, with deals overlapping by one-year to deliver greater capital markets capacity and also multi-year certainty for its protection needs in the state.
As a reminder, this is the second cat bond from Allstate in just two months, as the company secured $550 million of nationwide US, ex-Florida, reinsurance from a Sanders Re III Ltd. (Series 2022-1) transaction.
Using its Sanders Re III Ltd. special purpose insurer, Allstate is seeking at least $250 million of Florida catastrophe reinsurance protection from this new Series 2022-2 issuance, which looks like it will be the largest of its Florida-focused cat bonds to-date, if the target is hit.
The beneficiaries of the reinsurance protection that this Sanders Re III 2022-2 cat bond will provide, are Allstate’s Florida-focused underwriting subsidiaries Castle Key Insurance, Castle Key Indemnity, as well as National General and Northlight brand entities, we’re told.
Further evidence that Allstate is looking to build out its Florida cat bond coverage come in the structure, as this new issuance features three tranches of notes, where as the in-force 2020-2 cat bond was a single tranche arrangement.
For the first two tranches of notes the reinsurance protection will be on an indemnity trigger, per-occurrence basis and is structured to cascade as other reinsurance beneath is eroded, where as a third zero-coupon tranche is indemnity and non-cascading, we understand.
The first two tranches will have a three year term to the end of May 2025, while the third would provide just a single year of protection to the end of May 2023.
While the covered perils will be named storm, earthquake, severe thunderstorm, volcanic eruption, meteorite impact and wildfires impacting the state of Florida, similar to previous Florida-focused cat bond deals.
A $125 million Class A tranche of notes will provide indemnity, cascading per-occurrence reinsurance protection across a three-year term.
The Class A notes will have an initial expected loss of 0.67% and we’re told are being offered to investors with price guidance in a range from 5.75% to 6.5%.
A $125 million Class B tranche of notes are similar, but riskier, so will also provide indemnity, cascading per-occurrence reinsurance protection across a three-year term.
The Class B notes will have an initial expected loss of 1.79% and are being offered to investors with price guidance in a range from 7.75% to 8.75%, we understand.
The final Class C tranche of notes is as yet unsized, while set to provide indemnity, per-occurrence (but not cascading) protection across a single year term.
The unsized Class C notes have a particularly high initial expected loss of 17.43%, but while structured as zero-coupon discount notes we’re currently unaware of their price guidance.
The Class C tranche is a particularly risky layer of notes and they fact they are unsized and lack price guidance suggests Allstate is exploring the idea of bringing capital markets capacity into its Florida reinsurance tower lower-down.
The two higher layers are also a positive sign of Allstate’s desire to bring more cat bond capacity into its tower, as this would be the first time the company had multiple layers of cat bond reinsurance coverage for its Florida focused subsidiaries.
Allstate is also out in the market with its traditional reinsurance renewal needs, so these cat bonds will be sized accordingly to how attractive pricing is, versus traditional sources and how much capacity can be secured in different forms or structures.
We’ll update you as this Sanders Re III Ltd. (Series 2022-2) from Allstate comes to market and you can read about every catastrophe bond issuance in the extensive Artemis Deal Directory.
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