Allstate’s Florida cat bond priced high at $287.5m in size

The latest catastrophe bond from US primary insurance giant Allstate has now been priced, with the Florida reinsurance-focused Sanders Re III Ltd. (Series 2022-2) multi-peril issuance eventually reaching $287.5 million in size, but at higher pricing.

Allstate returned to the catastrophe bond market earlier in May, seeking to bring more capital markets backed coverage into its Florida reinsurance tower in time for this mid-year renewal.

Allstate usually sponsors a Florida-focused cat bond for its Castle Key Insurance, Castle Key Indemnity, as well as National General and Northlight brand underwriting subsidiaries every three years. But in 2022 the insurer has elected to come back after two years, perhaps reflecting the more challenging Florida reinsurance marketplace, or an opportunity it sees to perhaps write more in the higher priced primary environment there.

With its Sanders Re III Ltd. special purpose insurer, Allstate came back to market seeking at least $250 million of Florida catastrophe reinsurance protection from this new Series 2022-2 issuance.

It then looked like the size could increase a little across the first two bullet bond tranches of notes, with up to $275 million of protection being sought. The third zero-coupon tranche was not sized at all at that time, our sources said.

These cat bond will offer Allstate’s subsidiaries reinsurance protection on an indemnity trigger, per-occurrence basis and structured to cascade as other reinsurance beneath is eroded, across a three year term to the end of May 2025 for the two bullet bond tranches, and a one-year term for the zero coupon Class C notes.

The covered perils under the reinsurance 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.

The Class A tranche of notes began at $125 million in size and then was increased to up to $150 million, which is where we’re now told they will settle. They have an initial expected loss of 0.67% and were first offered to investors with price guidance in a range from 5.75% to 6.5%, which has now been finalised at the top of that range with a coupon of 6.5% to be paid.

The Class B tranche of notes are riskier and began at $125 million in size, subsequently being pitched at up to that amount. They have not priced at $100 million in size, so shrank a little. They have an initial expected loss of 1.79% and were first offered to investors with price guidance in a range from 7.75% to 8.75%, but the coupon has now been finalised at the top-end of 8.75%, we understand.

The final Class C tranche of one-year zero-coupon notes, which are also indemnity per-occurrence, but not cascading and have a particularly high initial expected loss of 17.43%, were never sized during the marketing, we’re told.

However, we can now report that they will be $37.5 million in size, but the pricing is not known at this time.

So in the end Allstate has secured $287.5 million of Florida focused reinsurance with its latest Sanders catastrophe bond deal, across three distinct layers, with a one-year very high-risk layer successfully placed as well.

That seems a strong result in the current cat bond market environment, reflecting Allstate’s stature as a repeat sponsor and reliable counterparty.

You can read all about this Sanders Re III Ltd. (Series 2022-2) from Allstate and every other catastrophe bond issuance in the extensive Artemis Deal Directory.