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Progressive set for upsized $135m Bonanza Re cat bond for ARX Holding

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Insurance group Progressive is now set to secure $135 million of collateralized catastrophe reinsurance from its new Bonanza Re Ltd. (Series 2023-1) catastrophe bond deal that benefits the ARX Holding insurers, including American Strategic Insurance Group.

american-strategic-progressive-logoIt’s a $10 million upsizing from the initial goal when the company returned to the catastrophe bond market mid-December with a $125 million target for the Bonanza Re 2023-1 cat bond issuance.

This is the sixth catastrophe bond in the Bonanza Re Ltd. series of deals, that have in the main covered the risks of American Strategic Insurance Group.

But it’s actually the seventh cat bond to provide reinsurance to insurer American Strategic, as the company had sponsored the fated Gator Re Ltd. deal back in 2014.

The coverage from these cat bonds has broadened out in recent years, to include coverage for some of the other carriers of the Progressive-owned ARX Holding Corporation, which is parent to American Strategic.

With this new Series 2023-1 cat bond, Bermuda domiciled special purpose insurer (SPI) Bonanza Re Ltd. will issue two tranches of Series 2023-1 notes for the Progressive insurance companies (we understand known as Progressive Home).

Now, thanks to stronger than anticipated investor demand, the Bonanza Re cat bond is set to complete to provide $135 million of reinsurance to the ARX insurers, across the two tranches.

The first will provide US named storm reinsurance across three hurricane seasons, through a Class A tranche of notes that only come on-risk at June 1st 2023 and run to the end of 2025.

The Class A notes will provide ARX Holding with indemnity and per-occurrence protection for named storm losses over this term and launched with a $75 million target size, which was reduced to between $65 million and $75 million and we’re now told are set to complete at $70 million.

With an initial base expected loss of 0.87%, the Class A notes were at first marketed with price guidance in a range from 7.5% to 8.25%, but will price at the top-end of 8.25%.

The Class B notes launched with an initial $50 million target size, which was subsequently increased to $55 million, but we’re now told have successfully been increased to $65 million.

The Class B notes will provide multi-peril aggregate reinsurance protection over a single year, just running through 2023, covering losses from US named storm, earthquake, severe thunderstorm, winter storm, wildfire events.

The zero-coupon Class B notes have an initial base expected loss of 1% and were first offered with pricing of 81% to 80% of principal, which roughly means a 19% to 20% rate-on-line equivalent, but will price at the top-end at 80% of principal, so implying a 20% rate-on-line equivalent.

Both tranches come with significantly elevated multiples-at-market than previous Bonanza Re cat bond deals, as investors continue to demand much higher spreads from new cat bond issues in 2023.

You can read all about this Bonanza Re Ltd. (Series 2023-1) catastrophe bond and every other cat bond ever issued in the Artemis Deal Directory.

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