American Strategic owner returns for second Bonanza Re cat bond of 2020

ARX Holding, the Progressive-owned parent of American Strategic Insurance Group, has returned to the catastrophe bond market for the second time this year, to sponsor a $100 million or greater sized Bonanza Re Ltd. (Series 2020-2)  issuance.

ARX Holding owns the American Strategic group of insurance companies and also Progressive Property Insurance, which will benefit from reinsurance coverage with this latest catastrophe bond deal to hit the market.

American Strategic had first entered the cat bond market back in 2016, sponsoring a $200 million Bonanza Re Ltd. (Series 2016-1) deal, that provided it with U.S. named storm and severe thunderstorm reinsurance coverage on a cascading and per-occurrence basis, across a two and a half year term, so including three hurricane seasons.

The company returned this year with the Bonanza Re 2020-1 catastrophe bond in February and secured $200 million of multi-peril reinsurance protection across an expanded range of perils, that featured U.S. named storms, severe thunderstorms, winter storms, wildfires and earthquakes. This second cat bond provided the insurer with per-occurrence reinsurance on a cascading basis, across four hurricane seasons and almost four years, coming on-risk from June 2020 and running to February 2024.

Now, the insurer is back in the cat bond market again, looking to tap into the appetite of capital markets investors to add to its reinsurance program, sources told us.

Bonanza Re Ltd., a Bermuda domiciled special purpose insurer (SPI), will look to issue three tranches of Series 2020-2 notes for its second deal of the year.

All three tranches of notes will be sold to investors and the proceeds by used to collateralize underlying reinsurance agreements between Bonanza Re Ltd. and the ceding insurer, so the insurance entities owned by ARX Holding.

A currently $100 million Class A tranche of notes will provide U.S. named storm reinsurance protection on a per-occurrence and indemnity trigger basis, covering four wind seasons, coming on-risk from June 1st 2021 and running until the end of December 2024.

As yet unsized Class B and Class C tranches of notes will provide annual aggregate reinsurance protection on an indemnity basis, covering losses from U.S. named storms, severe thunderstorms, winter storms, wildfires, earthquakes across just a one year term, running through calendar year 2021.

The Class A notes, the per-occurrence and U.S. wind only exposed layer of this cat bond transaction, will have an initial expected loss of 1.04% and are being offered to investors with a coupon guidance range of 4.5% to 5%.

We’re told these Class A notes cover a percentage of a wide, $400 million layer of the ARX Holding reinsurance tower, alongside the $200 million 2020-1 cat bond, so there is plenty of room for them to upsize to as much as double the $100 million launch size.

The Class B notes, which are the first single year, multi-peril and annual aggregate layer of this transaction, have an initial expected loss of 0.36% and are structured as zero-coupon, discount notes. They are offered to investors with pricing in a range of 90% to 88% of par, which equates to a roughly 10% to 12% coupon, we understand.

The Class C tranche, the second single year, multi-peril and annual aggregate layer, are a little riskier with an initial expected loss of 1.13%. This tranche is also structured as zero-coupon notes, and are offered with price guidance in a range from 86% to 84% of par, so a rough coupon equivalent of 14% to 16%.

It will be interesting to see how these annual aggregate layers are embraced by the ILS fund market and how much coverage they eventually provide to American Strategic and its parent holding company.

It’s encouraging to see American Strategic and its parent back in the catastrophe bond market for a second time this year.

Market conditions continue to suggest that for certain sponsors and layers of risk, the catastrophe bond market can offer a well-priced alternative source of reinsurance at this time.

We’ll keep you updated as the Bonanza Re Ltd. (Series 2020-2) transaction comes to market and you can read about this and every other cat bond deal in our extensive Deal Directory.