Despite having for some months been expected to face a total loss of its $300 million of principal and already being marked down for an expected full loss on secondary market trading sheets, Allstate’s Sanders Re II 2019-1 catastrophe bond has had its maturity date further extended for another three years, while the recovery is finalised.
It shows the recovery process is not yet completed and it’s important to note that investors are not expecting any return of collateral from this example of Allstate’s cat bonds, it seems, as the market continues to view it as a case where a full recovery of the reinsurance cover will eventually be made by the insurer.
Way back in March 2021, Allstate warned of a significant catastrophe loss impact from winter storm Uri and the severe winter freeze that primarily impacted Texas, which it warned at the time meant its aggregate reinsurance would trigger, which was provided by its Sanders Re catastrophe bonds.
It was the sole $300 million Class B tranche of notes from the Sanders Re II 2019-1 cat bond that sat lowest down in Allstate’s aggregate reinsurance tower at the time.
Then, in February 2022 we reported the carrier had revealed that it benefited from $1.37 billion of recoveries under its catastrophe reinsurance arrangements during calendar year 2021, $300 million of which came after a full exhaustion of the Sanders Re II 2019-1 cat bond.
As recently as May, the Sanders Re II 2019-1 Class B notes were still listed in the majority of cat bond broking desk secondary pricing sheets, but marked down for a total loss still.
Over the last couple of years, Allstate has been making reinsurance recoveries from the $300 million of notes, and we understand the remaining principal had been reduced to roughly $52 million by the third-quarter of 2023.
It seems brokers are anticipating the reinsurance recoveries will continue, right down to the full exhaustion that the notes are priced for, given all pricing sheets still hold the Sanders Re II 2019-1 Class B notes marked down to zero, or below 1 cent on the dollar in some cases.
But, the process continues and so the notes remain outstanding and as a result their maturity date has now been extended out for almost a further three years, to April 7th 2026.
At this stage this does not seem to imply any future return of collateral for investors, rather an extended amount of time for Allstate to finalise its reinsurance recoveries under the catastrophe bond.
This is not the only one of Allstate’s catastrophe bonds in extension currently.
A much more recent and interesting example was the extension of the $37.5 million Class C tranche of notes from Allstate’s Sanders Re III Ltd. (Series 2022-2), a cat bond that provides it with Florida focused reinsurance, as Allstate waits for its losses from hurricane Ian to be finalised.
As we always say, these extensions show the catastrophe bond structure working well to protect the cedents interests as losses develop, while providing time for clarity to emerge on losses and how much could eventually be recovered from them under the relevant reinsurance agreements.