U.S. insurer Allstate’s second visit to the catastrophe bond market in recent weeks to issue a new tranche of notes under its Sanders Re vehicle, Sanders Re Ltd. (Series 2014-2), is set to upsize while pricing on the notes has moved towards the top end of guidance.
Allstate has recently completed the $750m Sanders Re Ltd. (Series 2014-1) which provides it with reinsurance cover for U.S. named storms excluding Florida and U.S. earthquake’s in California, New York and Washington states. Allstate then launched a second cat bond, as a new takedown under the Sanders Re vehicle offering investors a single Series 2014-2 tranche of Class A notes.
The Sanders Re 2014-2 notes launched targeting $150m of fully collateralized reinsurance protection for two Florida property market focused Allstate subsidiaries, Castle Key Insurance and Castle Key Indemnity. The protection from this tranche of cat bond notes is for named storms, earthquakes and severe thunderstorms (so tornadoes as well) only in Florida, on a per-occurrence basis and using an indemnity trigger.
Artemis understands that the Class A notes are likely to upsize to between $175m and $200m before close, while at the same time pricing has moved towards the upper end of the launch guidance range, which was 3.5% to 4%, with sources suggesting the notes are now marketed with a coupon of 3.9%.
This is yet another example of investors demonstrating that their appetite to invest in property catastrophe risks is not at any price. Recent cat bonds have begun to price towards the mid or upper end of guidance, rather than the bottom or even lower as had been the trend throughout the last year. This suggests that investors have found their pricing floor, particularly on Florida property catastrophe risks.
It’s interesting to note that reinsurance prices continue to come down and further price declines are expected at the mid-year reinsurance renewals on Florida and U.S. property catastrophe reinsurance programs. It appears that the ILS and cat bond market has reached a pricing floor first, which is not really that surprising considering ILS and cat bonds have been leading prices down to some degree.
The Sanders Re Ltd. (Series 2014-2) catastrophe bond deal is expected to price later this week and be completed next week. We will update you as the deal comes to market and you can always read all about it in the Artemis Deal Directory.