The catastrophe bond issuance market continues to heat up as yet another transaction launched yesterday bringing a first-time sponsor to the market. The cat bond is being issued by Bermuda incorporated Armor Re Ltd. which is seeking to issue a Series 2013-1 tranche of cat bond notes to secure Florida wind protection for Florida focused insurer of commercial residential properties, and first-time cat bond sponsor, American Coastal Insurance Company.
We’ve managed to gather some details together on the transaction from various sources and hope to have more complete details later this week, so keep an eye on our Deal Directory for updates.
With Armor Re Ltd. (Series 2013-1) American Coastal Insurance are seeking a source of fully-collateralized reinsurance protection for Florida hurricanes and tropical storms for just under a one-year period, running until sometime in May 2014 we understand. It’s rather unusual to see one-year cat bonds come to market, but when they do it tends to be from a first-time sponsor such as this.
The protection provided by Armor Re will be from named storms which strike Florida, so tropical storms as well as hurricanes, and which affect the underlying book of commercial residential property insurance business. we’re told. The cat bond is being marketed with an initial size of $125m, but the layer details call for $200m of cover we are told so that is the more likely final size. The transaction will utilise an indemnity trigger and protection is on an aggregate basis.
We understand that the deal sits above American Coastal Insurance’s retention, reinsurance and Florida Hurricane Catastrophe Fund coverage, with the layer the deal provides cover for being from $913m of losses to $1.113 billion, so a $200m layer of cover. We’re told that the attachment point is being marketed as $75m, but is actually $913m on a first event basis, because the reinsurance layers beneath the cat bond do not have reinstatement provisions meaning once exhausted the cat bond attachment would drop down we assume.
The attachment probability is said to be 0.42%, while the exhaustion probability is said to be 0.3% and the expected loss 0.34%, making this a reasonably low-risk cat bond deal. As a result the price guidance is not that high for Florida wind, we’re told Armor Re is being marketed with a coupon range of 4.75% to 5.5%.
Willis Capital Markets & Advisory are the sole bookrunner and structuring agent for this transaction, continuing its track record of helping new sponsors to access the catastrophe bond market as it did last year with the innovative Golden State Re Ltd. (Series 2011-1) deal. AIR Worldwide are providing the risk modelling.
That’s all the detail that we have so far on this Armor Re Ltd. (Series 2013-1) catastrophe bond. We will update you as the cat bond comes to market and full details will be added to regularly in our Deal Directory entry.