ARX Holding, the Progressive-owned parent of American Strategic Insurance Group, has returned to the catastrophe bond market for its first issuance of 2021, with a $100 million plus target for a Bonanza Re Ltd. (Series 2021-1) deal through which it is seeking annual aggregate reinsurance protection.
The Bonanza Re catastrophe bonds, of which there were two issued in 2020, have secured American Strategic Insurance Group and its insurer entities per-occurrence, sometimes cascading, and aggregate reinsurance protection from the capital markets before.
This new cat bond issuance from Bonanza Re is, we understand, set to be the first to provide only annual aggregate multi-peril reinsurance protection to its sponsor.
According to sources, Bonanza Re Ltd., a Bermuda domiciled special purpose insurer (SPI), will look to issue two tranches of Series 2021-1 notes for its first catastrophe bond deal of the year.
At the moment we know that one tranche of notes is seeking $100 million of reinsurance for American Strategic’s insurance entities, but the second tranche is said to be unsized at this time.
Both tranches of notes are being offered as zero-coupon discount notes, we’re told, which is the same structure used for the second Bonanza Re deal issued in 2020.
The Series 2021-1 cat bond notes from Bonanza Re will provide the sponsor with just a one-year source of annual aggregate and multi-peril reinsurance protection, sources have told us, with a risk period running the duration of 2022.
Both tranches of notes will cover losses from U.S. named storms, severe thunderstorms, winter storms, wildfires and earthquakes, on an indemnity trigger basis.
Bonanza Re Ltd. will issue a $100 million Class B tranche of notes, that would attach at $650 million of losses, spanning a $100 million layer of the reinsurance tower.
That gives the Class B notes an initial expected loss of 0.32% and they are being offered to investors with pricing in a range of 89% to 88% of par, which equates to a roughly 11% to 12% coupon, we understand.
An unsized Class C tranche of notes is also being offered, that would sit below the Class A layer and attach at $575 million of notes, covering losses to $650 million.
That gives the Class C tranche of notes an initial expected loss of 1.28%, we’re told, so they are the riskier layer. But we understand no pricing guidance has been given on this tranche at this time.
In order for losses to qualify we understand there is a $2 million franchise deductible per-event, while the maximum loss any qualifying event can contribute is said to be $98 million.
This will be a particularly interesting catastrophe bond to watch coming to market this year, as its one-year term and annual aggregate reinsurance cover represents an area where the traditional reinsurance market is more challenged for capacity and price as the end of year renewals approach.
So it will be fascinating to see how strong cat bond investor appetite is for these aggregate cat bond notes, as this could be an interesting example for how ceding companies could look to secure efficient aggregate reinsurance capacity in the capital markets.