Allstate’s Sanders Re 2018 cat bond to hit $500m as pricing drops


The latest catastrophe bond to be sponsored by Allstate, a Sanders Re Ltd. (Series 2018-1) U.S. multi-peril transaction with a number of innovative features, is the latest cat bond to be well-received by investors resulting in an increase in size of 25% to $500 million, while at the same time pricing of the notes has dropped.

When the transaction launched earlier this month, Allstate was seeking a $400 million layer of collateralized reinsurance from it, on both a per-occurrence and annual aggregate basis in a novel dual-coverage structure. As we said, this isn’t unique, but it is unusual in larger, broadly syndicated deals.

Investors response to the novel structure appears to have been robust, as the transaction is now set to issue a $500 million tranche of notes, upping the reinsurance coverage Allstate will receive from it by 25%.

So the Series 2018-1 Class A cat bond notes issuance will now total $500 million, which will be sold to qualified investors in order to collateralize underlying reinsurance agreements with Allstate and subsidiaries.

The notes will provide Allstate with four-years of reinsurance protection for its personal lines book, against losses from multiple U.S. perils, including named storms, earthquakes, severe weather, fires and so-called other perils. The coverage does not include Florida and New Jersey, we understand.

The indemnity trigger will offer both per-occurrence and annual aggregate coverage, through the novel twin section structure. As we said in our earlier article on the deal, each layer of coverage spans $500 million of Allstate’s reinsurance tower, so there was always a chance this cat bond would get upsized, as we now see it to have been.

Investors are set to be compensated for the dual coverage approach of this catastrophe bond it seems, with the expected loss set at an initial 0.64% the multiple paid by the notes is much higher than typical U.S. multi-peril deals.

The price guidance was set in a range from 5.5% to 6.25% at launch, but we’re told this has now dropped to the bottom of guidance at 5.5%, giving a multiple of roughly 8.6 times the expected loss, which is particularly high and clearly designed to compensate investors for the two sections of reinsurance cover their capital and this cat bond will provide.

So yet again, Allstate is pushing expanding the catastrophe reinsurance cover its latest cat bond provides, bringing it ever more into line with traditional coverage options, but at increasingly keen pricing as well.

At the same time the inclusion of “severe weather” as a named peril likely means an expansion of the types of storm covered as well, making the protection from this cat bond more all-encompassing.

Moves to expand the coverage provided by catastrophe bonds at this point in the market cycle can only bode well for attracting other major sponsors to return to the market, or to sponsor their first cat bonds, as the comprehensive protection and attractive pricing demonstrates the value cat bond backed reinsurance and retrocession can provide.

This transaction is targeted for settlement before the end of the quarter, so falling into Q1 2018 cat bond issuance which already stands at $2.92 billion, according to Artemis’ data. The first-quarter of 2018 is set for a new record in terms of cat bond issuance.

We will keep you updated as this Sanders Re Ltd. (Series 2018-1) catastrophe bond proceeds to market and you can read all about this and every other cat bond transaction in the Artemis Deal Directory.

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