American Family Mutual Insurance Company has returned to the 144A catastrophe bond market for the first time since its two fated late 2010 Mariah Re deals, as the carrier seeks a $150 million or greater source of collateralized multi-peril reinsurance from a Four Lakes Re Ltd. (Series 2020-1) issuance.
Back in late 2010, American Family sponsored the issuance of 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 tranches 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.
After that saga, American Family has remained absent from the catastrophe bond market, so it is encouraging to now see the carrier back and looking to secure capital markets backed reinsurance with this new transaction.
Four Lakes Re Ltd. has been established as a Bermuda based special purpose insurer for issuing cat bonds on behalf of American Family (AmFam).
For this first issuance, Four Lakes Re Ltd. will seek to issue two tranches of catastrophe bond notes, that will be sold to cat bond investors and the proceeds used to collateralize the underlying reinsurance agreements between the issuer and AmFam.
The Four Lakes Re 2020-1 catastrophe bond will provide AmFam with a just over three-year source of catastrophe reinsurance protection from the capital markets, covering certain 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, we understand from our sources.
The deal features a currently $75 million Class A tranche of notes, that Four Lakes Re Ltd. will issue to investors. The Class A tranche is the less risky of two, having an initial expected loss of 2.28% and being offered with coupon guidance in a range from 6.5% to 7.25%, we’re told.
The riskier Class B tranche of notes to be issued by Four Lakes Re Ltd., are also seeking $75 million in terms of sizing. The initial expected loss of the Class B notes is 3.71% and these are offered to cat bond investors with price guidance ranging from 8.75% to 9.5%, we understand.
Maturity for both tranches is slated for the beginning of January 2024, suggesting over three-years of coverage and perhaps importantly for AmFam, that would include four winter storm seasons.
It’s good to see American Family Mutual Insurance Company returning to the catastrophe bond market and continuing to see value in tapping the capital markets for reinsurance protection.