Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Allstate’s Sanders Re catastrophe bond grows in size while pricing drops


We understand from sources in the insurance-linked securities market that U.S. insurer Allstate’s latest catastrophe bond deal, Sanders Re Ltd. (Series 2013-1), has upsized during the marketing of the deal. At the same time the price guidance on both tranches of notes being issued has dropped. Sanders Re is Allstate’s third trip to the cat bond market and now looks set to be its largest transaction to date as the two Willow cat bonds were both $250m in size.

With Sanders Re Allstate is looking for a source of fully-collateralized reinsurance protection for covered U.S. hurricanes and earthquakes, including fire following, on an industry loss and per-occurrence basis over a four-year risk period. The transaction uses a modified industry loss trigger, due to state-payout factors, with data provided by PCS.

The deal is split into two tranches of notes and launched with an initial size of $250m consisting of a $100m Class A tranche of notes and a $150m Class B tranche of notes, with both tranches exposed to both covered perils from different industry loss attachment points. When the transaction launched sources told us that the Class B tranche of notes was unlikely to increase in size, as we wrote in our article announcing the deal, and we understand that has been the case.

The Class A tranche of notes is now being marketed with a target size of $150m to $200m we understand, which would take the Sanders Re cat bond issuance size to $300m to $350m in total, larger than Allstate’s previous two Willow Re deals. The Class B tranche remains sized at $150m.

Price guidance has dropped on both tranches of notes. The Class A tranche began marketing with price guidance of 3.75% to 4.75%, but the target coupon has been reduced to 3.5% we are told. The Class B notes were launched with a price guidance range of 4.35% to 5% and that too has been reduced to a target coupon price of 4%. So both of the tranches of notes have seen pricing drop to below the range they were launched with, a decrease in price of around 17% for Class A and 14% for the Class B notes taking the mid-point of the original price guidance.

So yet another catastrophe bond looks set to secure its sponsor an increased amount of cover at a more attractive price than was initially thought. Allstate will be pleased with the results of its first trip to the cat bond market since 2008 and it will be interesting to see whether it chooses to return more frequently in future.

Update: The Sanders Re cat bond did indeed reach $350m in size with the same coupon levels described above when it priced later on the 29th April.

We expect this cat bond transaction to complete next week. You can read all about Sanders Re Ltd. (Series 2013-1) in our catastrophe bond Deal Directory and we’ll update you as the transaction comes to market.

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