Our sources have told us that the new Manatee Re II Ltd. (Series 2022-1) catastrophe bond that was designed to secure U.S. primary insurer Safepoint Insurance Company a $125 million or larger source of named storm reinsurance protection from the capital markets now won’t be issued.
Safepoint Insurance Company returned to the catastrophe bond market around the middle of March, seeking to sponsor its fifth cat bond to use the Manatee Re name.
The Manatee Re II 2022-1 cat bond was supposed to secure Safepoint with collateralized and multi-year reinsurance against losses from US named storms, so tropical storms and hurricanes, covering its core states of Alabama, Florida, Louisiana, Mississippi, New Jersey and Texas, on an indemnity and per-occurrence basis across a near three-year term.
The cat bond issuance was expected to be priced around the week beginning March 28th, we understand, but having heard nothing in the way of updates we spoke to some cat bond market sources and have now been told this new cat bond from Safepoint has now been pulled and won’t be issued at this time.
There can be multiple reasons for an insurer electing not to continue with its sponsorship of new catastrophe bond, ranging from market pricing, to a lack of investor appetite, or other internal corporate issues.
In this case we suspect it may be the former, that pricing proved less attractive than securing the same layers of cover in the traditional reinsurance market.
Partly, that could be down to the fact Safepoint has made recoveries under its cat bonds before, with Manatee cat bond deals triggered by both hurricane Irma in 2017 and hurricane Ida in 2021.
Sometimes the cat bond market can demand higher returns than a sponsor is prepared to pay, while the traditional reinsurance market may be able to absorb the risk and potential for volatility in a way that makes it more compelling for the sponsor to place its entire tower in a more traditional manner.
Of course, that more traditional manner of reinsurance placement could still involve insurance-linked securities (ILS) funds and capital markets capacity, if collateralized participation increases as a result of some risk not being transferred through the catastrophe bond.
There are always other options available to sponsors that could cause a cat bond issuance to be pulled. From transferring risk in a different way; accessing more traditional reinsurance capacity; seeking a private or club ILS or cat bond placement; bringing more ILS fund capital into its reinsurance program in a traditional but collateralized manner; honing of the portfolio reducing demand for cover from third-parties; or even retaining more risk.
It’s impossible to understand the motivations of Safepoint, of course, but as a sophisticated buyer and user of reinsurance and risk transfer, with long-established structures and mechanisms it can turn to for supporting its protection needs, we suspect the company will be back in the catastrophe bond market again in future when the time and conditions are right for the company.