Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Farmers Exchanges renews $500m contingent capital surplus note facility


The Farmers Exchanges, the third largest insurer of personal auto and homeowners insurance in the U.S., has announced the renewal of a $500m contingent capital facility designed to give them access to capital in the event of major catastrophe loss. Initially launched in 2007, the contingent capital facility gives the Farmers Exchange the ability to issue 10 year surplus notes at any time during a three-year period, in the event of a specified major catastrophe loss, at a pre-agreed price.

As with all contingent capital arrangements this deal will provide Farmers with capital at just the time they require it most. These facilities generally have specified triggers which activate the contingent capital facility based on parameters ranging from catastrophe event severity to indemnity loss amounts suffered. By locking in this capital facility (akin to a form of capital market funded reinsurance) at a pre-agreed price Farmers can secure coverage in a cost-effective manner for the events which would really hurt their business were the contingent capital facility not available. In this manner they act as a similar, predictable reinsurance type facility to a catastrophe bond.

“This innovative transaction is a winner on many fronts as it helps to secure the financial strength of the Farmers Exchanges for the ultimate benefit of our customers,” said Ron Myhan, Chief Financial Officer of the Farmers Exchanges. “Most importantly, this transaction provides the Farmers Exchanges with access to regulatory capital precisely when we need it –and at a reasonable cost –after a major catastrophic event,” Myhan added.

Swiss Re, Commerzbank A.G. and RBS Securities Inc. all participated in the transaction as joint-bookrunners with active syndication roles.

“Syndicating a subordinated contingent credit facility with potential exposure for 13 years in the current financial markets was always going to be more challenging than when the first facility was put in place in 2007,” said Alan Badanes, Managing Director, Swiss Re. “The success of the deal was based on both the high quality of the Farmers Exchanges’ name and franchise, and key structuring elements in the deal, such as the remote catastrophe trigger, which provided a good risk-adjusted return to lenders.”

Richard Furk, responsible for insurance coverage in the US, UK and Bermuda at Commerzbank commented; “We were delighted to work again with Farmers Exchanges on this unusual form of capital instrument, bringing together bank and non-bank investors within a difficult market environment.”

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis London 2022 - Insurance-linked securities conference in London

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.