American Family Mutual Insurance Company is targeting an upsized $175 million of collateralized multi-peril reinsurance from its Four Lakes Re Ltd. (Series 2020-1) catastrophe bond issuance, the carriers first cat bond in a decade.
Back in late 2010, American Family sponsored two tranches of severe thunderstorm linked catastrophe bonds, the $100 million Mariah Re Ltd. (Series 2010-1) and $100 million Mariah Re Ltd. (Series 2010-2) deals.
Both of these were triggered by losses from the record-breaking 2011 U.S. tornado season and the Mariah Re saga began, resulting in litigation over the payouts, although in the end both defaults still stood and investors lost their principal as AmFam claimed on its reinsurance.
After that saga, American Family has remained absent from the catastrophe bond market, so it is good to see the carrier seeking to upsize on its first cat bond in a decade.
When the Four Lakes Re 2020-1 catastrophe bond launched to the market in October the target size was just $150 million of multi-peril reinsurance, across the two tranches of notes to be issued.
Now, we’re told the target has been lifted thanks to investor appetites being strong enough to support a slightly larger cat bond deal, with American Family now aiming to secure $175 million of reinsurance from the issuance.
The now targeting $175 million Four Lakes Re 2020-1 catastrophe bond will provide AmFam with just more than three-years of catastrophe reinsurance protection from the capital markets, covering losses caused by multiple U.S. perils, including U.S named storm, earthquake, severe thunderstorm, winter storm, volcanic eruption, and meteorite impact.
Coverage is across the entire 50 U.S. states and D.C., on an indemnity and per-occurrence basis.
The deal featured a $75 million Class A tranche of notes, which has now been upsized to $100 million, we’re told. The Class A tranche is the less risky of the two, with an initial expected loss of 2.28%. It was first offered to investors with coupon guidance in a range from 6.5% to 7.25%, but we’re now told that the pricing has been fixed at the mid-point of 7%.
The riskier Class B tranche of notes are still seeking $75 million in terms of sizing, we understand. The initial expected loss of the Class B notes is 3.71% and these were at first offered to cat bond investors with price guidance ranging from 8.75% to 9.5%, which we’re now told has been fixed at the upper-end of guidance at 9.5% for final marketing.
This looks set to be how this catastrophe bond prices, we understand, which would be a successful return for AmFam as it looks to bring the capital markets back within its reinsurance program, on a securitized and multi-year basis.