U.S. primary insurer Allstate’s latest catastrophe bond transaction, Sanders Re Ltd. (Series 2014-1), could upsize by 25% to $750m in size while pricing looks destined to close at the mid to upper end of guidance.
Update: Sanders Re 2014-1 achieved the growth to $750m at final pricing.
With the Sanders Re 2014-1 cat bond Allstate is looking to secure three layers of fully-collateralized reinsurance protection from U.S. named storms and earthquakes (including fires following) for a portion of it’s personal and, less typically for the cat bond market, auto lines of business. The cat bond features a trigger using a state-weighted PCS industry loss index and is calculated on a per-occurrence basis.
Allstate’s second Sanders Re cat bond launched at $600m in size featuring three tranches of risk, two tranches providing four years of cover and the third having a five-year term. All three tranches are exposed to both named storms and earthquakes on a per-occurrence basis.
Artemis understands that each tranche of notes may increase in size and they are now being marketed with a range of possible sizes, giving them room to upsize should investor demand support it.
The Class B tranche of notes, providing four years of protection, which launched at $250m is now being marketed with a size range of $250m to $330m.
The Class C tranche of notes, which also provide four years of protection, launched at $100m and is now said to be marketed with a range of $100m to $115m.
Finally the Class D tranche, which has the five-year term, had launched at $250m and is now offered with a size range of $250m to $305m.
So if all three of these tranches of Sanders Re 2014-1 cat bond notes were to grow to their maximum the deal would come in at $750m of cover for Allstate.
The transaction does include an optional fourth tranche of risk, but at this time Allstate has not marketed it. We understand that the fourth, Class A, tranche of notes will likely be marketed only if the placement of the other three is deemed successful by Allstate, meaning that the deal could get even larger.
Interestingly, pricing on Sanders Re looks set to settled towards the mid or upper end of initial guidance. With both the recent Everglades and Armor cat bonds having priced towards the upper end perhaps the cat bond market has now found its pricing floor for these kinds of risks. Of course it’s also possible that the brokers are being more ambitious on pricing and the launch range is more realistic than was seen a few months ago when every deal priced down significantly.
The Class B tranche of notes launched with initial price guidance of 2.75% to 3%, but look set to price at the upper end at 3% we understand. The Class C tranche was offered with a coupon range of 3% to 3.5%, but will price right in the middle at 3.25%. Finally, the Class D tranche was offered at a range of 3.5% to 4%, but that has been narrowed and moved towards the upper end at 3.75% to 4%.
Allstate’s latest cat bond is expected to price later this week and will settle later in May. We’ll update you as the transaction comes to market and you can read all about Sanders Re Ltd. (Series 2014-1) and every other catastrophe bond, including all those sponsored by Allstate, in the Artemis Deal Directory.