Allstate has increased the target issuance size for its latest catastrophe bond, with the Sanders Re II Ltd. (Series 2021-2) transaction now expected to secure the company a $400 million of multi-peril per-occurrence and aggregate reinsurance protection across a range of named perils.
At the same time, the pricing has diverged between the per-occurrence and annual aggregate sections of this cat bond, while the upsizing is all focused on the per-occurrence tranche of cat bond notes that are being issued.
Initially, the target was to secure $350 million of reinsurance protection from the capital markets with this deal, but investors seem to have responded positively to the per-occurrence layer in particular, which will please the sponsor given it has passed some losses to cat bond investors in recent months.
The now $400 million of notes that Sanders Re II will issue, will provide Allstate with multi-peril US reinsurance protection across a three year and four month term, with the first four months only covering the insurer on a per-occurrence basis and then after that the remaining three years providing it with both per-occurrence and aggregate reinsurance protection, sources told Artemis.
The Series 2021-2 notes issued by Sanders Re II will provide Allstate with cover against losses from the named perils of US named storm, earthquake, severe weather, wildfire, volcanic eruption, meteorite impact, across all states except for Florida, all on an indemnity trigger basis.
The Class A tranche of notes have grown from $200 million to $250 million in size, and will provide Allstate with per-occurrence reinsurance protection right through a more than three year risk period
The Class A notes will have an initial expected loss of 0.8457% and were first offered to investors with coupon guidance in a range from 3% to 3.75%, but we understand this has now been fixed at 3.25%, so below the mid-point.
Meanwhile, the still $150 million Class B tranche of notes will provide Allstate with per-occurrence protection only for the first four months, up to the end of April 2022 and then both occurrence and annual aggregate reinsurance across the next three years.
The Class B tranche of notes have an initial expected loss of 1.0869%. The Class B notes were first offered with price guidance in a range from 2.75% to 3.25% for the initial per-occurrence only period and 11.5% to 12.5% for when the annual aggregate protection kicks in. We now understand that pricing has been fixed at 3% for the per-occurrence only term and the upper-end of 12.5% for when the notes provide aggregate reinsurance cover as well.
Catastrophe bond investors are clearly differentiating aggregate coverage, especially where losses have previously been suffered, as evident by the pricing on this Sanders Re II cat bond deal.
That makes sense, given the losses suffered in recent years have often come from aggregate reinsurance towers that feature catastrophe bonds and it’s expected aggregate layers will face some of the steepest price hikes at the next reinsurance renewals.