Mercury Insurance, a California headquartered property casualty insurer, has secured $50.7 million of California wildfire reinsurance protection through a Randolph Re (Series 2021-1) private catastrophe bond issued using Aon’s platform.
This is the second transaction to come to light that has used broker Aon’s private catastrophe bond issuance and placement platform Randolph Re.
A year ago, a $50.25 million Randolph Re (Series 2020-1) transaction was issued, which we later learned from a source was exposed to California wildfire risks.
With this new Randolph Re (Series 2021-1) transaction, we’ve learned that the sponsor, or ceding company, is Mercury Insurance, a P&C company that insures a large portfolio of property risk in wildfire exposed parts of California.
As a result, there is every chance this is a renewal of last year’s Randolph Re deal, so we believe there is a strong chance Mercury was also the sponsor of that private cat bond.
Aon launched the Randolph Re private cat bond platform in late 2019, as a dedicated platform for issuance of private ILS transactions , sized at $25 million and above, so they can be executed in a streamlined manner and syndicated to capital market investors.
Private placement cat bonds placed using Randolph Re are issued through Aon’s special purpose vehicle White Rock Insurance (SAC) Bermuda Ltd. and the brokers’ insurance management unit Aon Insurance Managers services the transactions.
With this, the second Randolph Re issuance that we’ve seen, Aon’s White Rock Insurance (SAC) Ltd., acting on behalf of its segregated account Randolph Re 2020-1 and under the Randolph Re Program, has issued $50.7 million of Series 2021-1 notes.
The insurance-linked notes issued are due July 6th 2022, so likely represent a one-year fully collateralised reinsurance agreement that has been securitised for the cedent, which as we said we’ve learned to be Mercury Insurance.
In this case, we know that the property catastrophe risks covered under the reinsurance agreement are California wildfire related and we’re told that as well as wildfires, this deal will also cover fire losses following an earthquake as well.
As a result, Mercury Insurance will benefit from a single year of $50.7 million of California wildfire reinsurance with this latest Randolph Re private catastrophe bond, with the protection afforded on an indemnity trigger and per-occurrence basis, we’re told.
We understand the notes can attach at $450 million of losses and cover up to an exhaustion point of $850 million, so the notes will cover almost 13% of this $400 million layer of risk.
The notes are structured as a zero coupon deal, meaning the premium has likely been paid upfront to the investors like in a collateralized reinsurance deal. Because of that we don’t have any coupon information unfortunately.
The $50.7 million of notes will have been sold to capital market investors, typically dedicated insurance-linked securities (ILS) funds or specialist asset managers with a dedicated cat bond focused strategy.
Aon Securities acted as the sole structuring agent and bookrunner for the transaction.
The $50.7 million of notes issued under the Randolph Re Program and the program itself have both been admitted to the Bermuda Stock Exchange (BSX) for listing.
Mercury Insurance was one of those that saw its portfolio particularly hard hit by wildfires of recent years, we understand.
The capital markets may have offered an effective and alternative source of reinsurance, to complement its traditional program, resulting in this private cat bond and possibly also last year’s similar Randolph Re deal.