Price guidance for U.S. primary insurance giant Allstate’s latest catastrophe bond issuance, the $250 million target Sanders Re II Ltd. (Series 2020-1) transaction, has moved higher for the riskier layer of notes, we understand.
The eleventh catastrophe bond sponsored by Allstate that we have listed in our extensive catastrophe bond Deal Directory, this new transaction is the second under the Sanders Re II special purpose insurer.
With this new cat bond, Allstate is aiming for Sanders Re II Ltd. to issue two tranches of notes that will be sold to cat bond investors and the proceeds used to collateralise reinsurance arrangements between it and the insurer.
The resulting 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, on a fully collateralised basis.
The reinsurance protection provides Allstate’s with coverage for its personal lines property and auto books of business, on an indemnity trigger basis and the new Sanders Re II cat bond will provide Allstate with both per-occurrence and aggregate reinsurance protection, just like its last cat bond did.
The transaction still targets at least $250 million of reinsurance protection for Allstate and at this time there haven’t been any updates on size, we understand.
A $150 million Class A tranche of Series 2020-1 notes will provide per-occurrence protection, attaching at $2.75 billion of losses with an initial base expected loss of almost 0.95%.
These notes were at first offered to cat bond investors with price guidance in a range from 4.25% to 4.75%, but we’re now told that pricing for this layer has been fixed at the mid-point at 4.5%.
A $100 million Class B tranche of notes, offers both per-occurrence and annual aggregate reinsurance protection and attaching at $2.75 billion of losses to Allstate on an occurrence basis and $3.976 billion on an aggregate basis, with an expected loss at the base case of 0.92% on a combined basis.
This Class B tranche of Sanders Re II Ltd. Series 2020-1 notes launched with price guidance in a range from 12% to 13%, but we’re now told this guidance has narrowed and moved towards the upper-end, with the notes now offered with pricing of 12.75% to 13%.
It’s not surprising that the layer offering aggregate reinsurance coverage is the one to see its pricing tighten towards the upper-end, given the losses faced through aggregate contracts in recent years.
Once completed before the end of this month, the Sanders Re II 2020 catastrophe bond will provide Allstate with a valuable source of reinsurance protection, sitting neatly alongside its traditional layers in the tower and thereafter responding 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.