American Strategic’s Bonanza Re cat bond doubles in size at top-end pricing

The second catastrophe bond issuance to be sponsored by American Strategic Insurance Group has received a favourable response from investors, as the Bonanza Re Ltd. (Series 2020-1) transaction has doubled in size to reach $200 million.

At the same time the pricing for the now $200 million of reinsurance protection that the notes will provide has settled at the top-end of initial guidance, reflecting cat bond investors desire for higher multiples in 2020.

American Strategic returned to the catastrophe bond market in January, bringing what was at the time a $100 million issuance of notes in search of an expanded source of collateralised reinsurance from the capital markets, that would cover more perils and provide protection over a longer period of time than before.

Its previous cat bond, the $200 million Bonanza Re Ltd. (Series 2016-1) deal, provided 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 covering three hurricane seasons.

This new Bonanza Re 2020-1 catastrophe bond seeks reinsurance protection across an expanded range of perils, covering certain losses from U.S. named storms, severe thunderstorms, winter storms, wildfires and earthquakes, on a per-occurrence and cascading basis, but over four hurricane seasons and almost four years, coming on-risk from June 2020 and running to February 2024.

The deal launched with Bonanza Re Ltd. seeking to issue a single tranche of Series 2020-1 Class A notes with a size of $100 million.

The notes issued will provide indemnity triggered reinsurance coverage, on a per-occurrence and cascading basis. This protection will sit at the top of the American Strategic reinsurance tower, but with layers beneath inuring to it so that it will drop-down as lower layers of protection are eroded by losses.

Now, we’re told that American Strategic has again managed to secure a $200 million layer of reinsurance from its cat bond issuance, with the single tranche doubling in size thanks to investor demand.

The now $200 million of Series 2020-1 Class A notes that will be issued by Bonanza Re Ltd., which have an initial attachment probability of 1.15% and an initial expected loss of 1.03%, were initially offered to cat bond investors with price guidance in a range from 4.25% to 4.75%.

But we’re told that the $200 million of notes have now got revised guidance at the top-end of that range, so at 4.75%, making the multiple a much more healthy 4.6 times the expected loss.

So it looks like American Strategic will successfully achieve its goal of replacing the $200 million of catastrophe bond coverage that it had, but on a significantly expanded basis given the longer-term and wider range of catastrophe perils covered.

The transaction is slated to price this week and complete next week, likely at these final terms.

We’ll update you should anything else change as the Bonanza Re Ltd. (Series 2020-1) transaction comes to market and you can read about this and every other cat bond deal in our extensive Deal Directory.