Farmers Insurance Group has now secured the slightly upsized $160 million of collateralized reinsurance protection from its first catastrophe bond, with the Topanga Re Ltd. (Series 2021-1) issuance set to provide the Zurich-linked insurer with multi-year aggregate cover across peak perils.
Farmers Insurance, the US insurer that also operates across reciprocal insurer brands and has links to Zurich Insurance Group, ventured into the catastrophe bond market for the first time last month, seeking at least $100 million of collateralized reinsurance through the Topanga Re cat bond.
The issuance targeted a multi-year source of both per-occurrence and annual aggregate catastrophe reinsurance protection for Farmers, covering losses from named storms, earthquakes, severe weather and wildfires affecting the United States.
At its launch, special purpose insurer Topanga Re Ltd. hoped to issue a $100 million tranche of per-occurrence focused Class A notes and an unsized tranche of annual aggregate Class B notes.
The Class A tranche of notes targeted $100 million or more of protection, to provide Farmers with per-occurrence and indemnity trigger protection across a four-year term to the end of 2025, with the notes having an initial expected loss of 1.49%.
The Class A notes were first offered to catastrophe bond investors with price guidance in a range from 4.25% to 4.75%, with that price guidance later fixed at the upper-end of 4.75%, which is where the notes eventually priced.
Meanwhile, a Class B tranche of notes was unsized at the beginning of the issuance process, seeking annual aggregate reinsurance protection for Farmers, over just a two-year term to the end of 2023.
The aggregate notes have an initial expected loss of 1.03% and were offered to cat bond investors with a fixed coupon of 15%, with no range offered.
The Class B tranche then saw its target size updated, to between $50 million and $60 million of protection.
We’re now told that the Class B notes have now been priced at the upsized target of $60 million, while their coupon pricing remained at the 15% level.
For Farmers, this appears to have been a very successful issuance, securing the insurer both occurrence and the more challenging to secure aggregate reinsurance protection.
In particular, the fact it has secured cat bond cover for aggregate protection against wildfire losses is notable, being a peril other insurers are likely to seek out more capacity for given recent loss activity in California, the western United States and Australia.