US primary insurance giant Allstate has lifted the target for its new Sanders Re III Ltd. (Series 2023-1) catastrophe bond to as much as $250 million, but at the same time we’re told the riskiest zero-coupon Class C tranche of notes may now not be placed.
Allstate had returned to the cat bond market earlier this month, targeting at least $225 million of catastrophe reinsurance from its first cat bond issuance of this year, with a proposed three tranches of notes being marketed.
Allstate has sponsored 16 successful cat bond issuances since it entered the market in 2007 and the Sanders Re programme is an annual feature, with at least one new issuance every year.
Details of every cat bond from Allstate can be found in our Deal Directory.
Notably, the third Class C tranche of notes proposed with this new Sanders Re III 2023-1 cat bond were particularly risky, and structured as zero-coupon notes.
Allstate has used the zero-coupon and single year tenure tranche to lock-in capital markets coverage to a lower-layer of its reinsurance tower in the past, but this time we’re told the appetite for such risk levels may no longer be there.
The Class C notes had an initial expected loss of 18.63% and attachment probability of 28.13%, attaching on an occurrence basis at $750 million of losses to Allstate’s nationwide (ex-Florida) tower.
Sources have now told us this tranche now looks unlikely to be placed with this syndicated deal, so it could either be placed privately or in the traditional reinsurance market, we expect.
So, two tranches of notes remain and we’re told Allstate’s target for reinsurance across them both has now been lifted to as much as $250 million.
This Sanders Re III 2023-1 cat bond will provide Allstate with four-years of reinsurance against losses from multiple perils nationwide (ex-Florida).
A Class A per-occurrence tranche of notes remain targeted for $100 million of cover for Allstate. These notes have an initial base expected loss of 0.9382%, and were at first offered to investors with price guidance of 5.75% to 6.5%.
We’re now told the price guidance for the Class A occurrence tranche of notes has been lowered to the bottom-end of guidance, fixed at 5.75%.
Meanwhile, what were a $125 million tranche of Class B notes to provide annual aggregate reinsurance protection, are now targeted as between $125 million and as much as $150 million. The Class B notes have an initial base expected loss of 0.7402%, and were initially offered with price guidance of 15% to 15.75%.
Now, we understand the price guidance for this Class B tranche of notes has been narrowed, with a spread of between 15.5% and 15.75% sought, so towards the upper-end of guidance.
So a mixed outcome for Allstate, in terms of execution, but encouraging to see the insurer continue to place the capital markets at the heart of its catastrophe reinsurance arrangements for 2023.
You can read all about this Sanders Re III Ltd. (Series 2023-1) from Allstate and every other catastrophe bond issuance in the extensive Artemis Deal Directory.
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