One tranche of U.S. primary insurance giant Allstate’s latest Sanders Re II Ltd. (Series 2019-1) catastrophe bond has been pulled and won’t be issued, while the higher risk layer has remained at $300 million in size and its pricing has moved to the top-end of initial guidance.
The first cat bond to be sponsored by Allstate in 2019 was launched earlier this month with a target of securing $350 million of both occurrence and aggregate reinsurance protection from the issuance and sale to ILS investors of two tranches of notes.
One of those tranches will now not be issued, we understand, with Allstate said to be opting for another source of reinsurance for that layer.
We’re told pricing looked set to be uneconomical on this lower risk layer of the offering, causing it to be pulled instead of issued.
The remaining $300 million tranche of notes will provide Allstate with collateralized reinsurance covering certain losses from U.S. named storms, earthquakes, severe weather events, fires and other perils, for all states except for Florida.
The notes will protect Allstate against these losses on both a per-occurrence and annual aggregate basis using an indemnity trigger, across a four-year term. The protection is specifically for Allstate’s personal lines insurance business, across both property and automotive portfolios of risk.
The remaining Class B tranche of notes was the higher risk of the two offered to ILS investors.
The Class B notes were launched to investors at $300 million in size, hence no growth has been seen in the amount of reinsurance coverage this cat bond will provide to Allstate.
The still $300 million of notes will attach on an occurrence basis at $2.75 billion of losses and on an annual aggregate basis at $3.54 billion, covering a $400 million layer of Allstate’s reinsurance tower.
The Class B notes have an initial expected loss of just slightly under 1.57% combined across the two sections of coverage and at launch the notes came with price guidance in a range from 11.25% to 12.25%.
Now, we understand the pricing of these notes has been fixed at the top-end of guidance, at 12.25%.
Investor sources said the lower risk tranche that was pulled had not offered enough compensation for the aggregate section of coverage and this had put some off wanting to invest in the layer. Meanwhile the surviving Class B tranche was only deemed attractive at the upper-end of guidance.
Investors have faced significant losses from aggregate layers in the last two years, hence there does appear to be a push for higher compensation, particularly with multi-peril cat bonds that include such a wide range of weather and catastrophe exposures such as this transaction.
It’s encouraging to see investors continuing to exert their desire for higher pricing from catastrophe bonds issued in 2019.
You can read all about this now $300 million Sanders Re II Ltd. (Series 2019-1) catastrophe bond transaction from Allstate in the Artemis Deal Directory.
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