U.S. primary insurance group Frontline Insurance is back for its second catastrophe bond issuance, with the carrier seeking a $100 million or greater source of named storm reinsurance protection for itself and subsidiary First Protective from this Astro Re Pte. Ltd. (Series 2021-1) deal.
Frontline and its subsidiary insurance carrier First Protective both have a significant coastal wind-exposed property focus within their portfolios, so it’s no surprise the insurer relies on reinsurance to protect it against catastrophe losses.
The carrier first visited the catastrophe bond market back in 2018, sponsoring a $350 million Frontline Re Ltd. (Series 2018-1) transaction.
That cat bond was impacted by hurricane Michael, which struck Florida and surrounds in 2018 and it was loss creep developing from that storm that eventually saw both tranches of the Frontline Re 2018 cat bond marked down for likely losses of principal, one tranche significantly so.
In fact, the latest broker pricing sheets for cat bonds secondary marks shows that the $250 million Class A tranche of notes from the Frontline Re 2018 cat bond are at this time marked down roughly 35% to as much as 50%, while the $100 million Class B tranche has already paid some $76.37 million in losses and the remaining $23.63 million of notes outstanding from that tranche are marked down for bids as low as 5 cents on the dollar.
So Frontline has definitely benefited from its first catastrophe bond, with the transaction helping by absorbing some of its losses from hurricane Michael.
Now, the company has returned and is using Singapore as a domicile for this latest issuance, with a special purpose reinsurance vehicle (SPRV) named Astro Re Pte. Ltd. registered for this cat bond transaction.
Astro Re Pte. Ltd. will issue a single Series 2021-1 Class A tranche of notes, currently sized at $100 million and these notes will be sold to investors and the proceeds used to collateralize a reinsurance agreement to cover Frontline and First Protective.
The reinsurance coverage will be for named storm losses affecting the states of Florida, Alabama, Georgia, North Carolina and South Carolina, on an indemnity trigger and per-occurrence basis, across a four-year term to July 2025.
The $100 million of notes to be issued by Astro Re Pte. will have an initial expected loss of 2.9% and are being marketed to cat bond investors with price guidance in a range from 7.25% to 8%, we understand.
At that level of expected loss we suspect the cat bond will sit close to, or alongside, the FHCF backed reinsurance coverage that Frontline has, likely towards thee upper-end of this, or even on top of it.
It’s encouraging to see this sponsor return to the cat bond market, as the industry is there to absorb catastrophe risk and pay claims when major loss events happen, so it’s a sign that Frontline has been happy with its catastrophe bond recovery experience over the last few years since hurricane Michael.