American Family Mutual Insurance Company, or AmFam as it is abbreviated, has returned to the catastrophe bond market for the third year running, looking to add another $100 million or more to its capital market backed catastrophe reinsurance, through a new Four Lakes Re Ltd. (Series 2022-1) multi-peril cat bond issuance.
It’s the third year running that the insurer has sponsored a Four Lakes Re catastrophe bond, having sponsored a $175 million multi-peril issuance in 2020 and a similar $125 million deal a year ago.
This will actually be American Family’s fifth time sponsoring a catastrophe bond though, as the insurer had previously sponsored the fated Mariah Re catastrophe bonds back in 2010, that were both triggered by tornado losses.
It’s 2022 cat bond issuance features a slight narrowing of coverage, as some of the less well-modelled perils that had been included in the previous Four Lakes Re cat bonds have seemingly been dropped from this new deal.
Special purpose insurer Four Lakes Re Ltd. will look to issue a single tranche of Series 2022-1 Class A notes that will be sold to investors and the proceeds used to collateralize an underlying reinsurance agreement with AmFam, Artemis is told.
The issuance is targeted at $100 million or more in size and the coverage from the notes will run across a roughly three-year term to the end of 2025, we understand.
The notes will provide AmFam with reinsurance protection, on an indemnity trigger and per-occurrence basis, against losses from named storms, earthquakes, severe thunderstorms, winter storms and wildfires across the United States.
That’s a slightly shorter list of perils than the previous two Four Lakes Re cat bonds, which also provided coverage for the less well-modelled volcanic eruptions and meteorite impacts.
With cat bond investors pushing back on any risks that are felt to be less well-modelled, or included in deals without being adequately priced, it makes sense to narrow the coverage to the better-modelled range of perils that are more likely to be impactful for American Family.
The currently $100 million tranche of Series 2022-1 Class A notes that Four Lakes Re Ltd. is issuing, will have an initial attachment point at $1.96 billion of losses to AmFam and exhaust their coverage at $2.46 billion, we’re told.
The Class A notes come with an initial attachment probability of 1.63%, an initial base expected loss of 0.49% and are being marketed to cat bond investors with price guidance in a range from 6% to 6.5%, sources said.
Which will deliver a particularly high multiple-at-market to investors in the notes, if it prices within guidance.
These Four Lakes Re 2022-1 cat bond notes will sit higher up in the reinsurance tower for AmFam than its previous two deals and on a risk-adjusted basis appear set to provide much higher compensation to investors, in-line with the hardening of market pricing.