Allstate’s latest catastrophe bond transaction Sanders Re Ltd. (Series 2014-1), which is its fourth that we’ve recorded in the Artemis Deal Directory, has become the U.S. primary insurer’s largest cat bond to date as it upsized by 25% to launch at $750m.
As we reported yesterday, the Sanders Re 2014-1 cat bond was slated to complete somewhere between the initial $600m and an upsized $750m, depending on investor appetite. Artemis understands that Allstate successfully secured the maximum amount of coverage from that range, with the transaction reaching its final pricing at $750m in size.
At the same time as upsizing to $750m the pricing settled almost at the top end of the original launch range on two of the tranches issued. ILS and cat bond investors have given another clear message that it is not a case of assuming risk at any cost and they do want to be compensated sufficiently to enable them to feel comfortable taking on the risk.
So here is how the Sanders Re 2014-1 catastrophe bond looks after upsizing and final pricing:
A Class B tranche of notes, providing four years of protection, which launched at $250m grew by 32% to $330m. Price wise, the Class B tranche of notes launched with initial price guidance of 2.75% to 3%, pricing settled at the upper end at 3%
The Class C tranche of notes, which also provide four years of protection, launched at $100m and grew by 15% to $115m. The pricing for this tranche launched with a coupon range of 3% to 3.5%, but priced right in the middle at 3.25%.
Finally the Class D tranche, which has a five-year term, launched at $250m but by close grew by 22% to $305m. The pricing on the Class D notes had launched with a guidance range of 3.5% to 4% but finally settled almost at the top end at 3.9%, Artemis understands.
It’s possible that investors were not willing to support the low pricing for a risk which is less typical in cat bonds. Allstate’s Sanders Re deals provide it with cover for personal and auto lines of business losses, on an industry loss basis, which is not as common in the cat bond market. Allstate’s Sanders Re 2013 cat bond was the first to use this type of trigger.
In fact, if you look at the attachment probabilities and expected losses versus Allstate’s 2013 cat bond Sanders Re Ltd. (Series 2013-1), the pricing is cheaper in 2014 but only slightly. This could indicate a point below which cat bond investors are not prepared to support these types of risks.
Allstate could still take its 2014 Sanders Re cat bond issuance even bigger if it chooses to issue the Class A tranche that was revealed at the transactions launch. Allstate has an option to issue a fourth tranche of notes, now that the first three are on their way to completing successfully.
The Class A tranche would be the least risky of the four, sitting at the top of the layers of reinsurance protection provided by this cat bond. We will update you should we hear that the extra tranche has been marketed.
With Sanders Re 2014-1 hitting $750m the catastrophe bond market is now only just short of $5 billion for first half issuance, an extremely impressive start to the year helped by a number of larger transactions.
Sanders Re 2014-1 is scheduled to settle later in May, in two weeks time, which may be to give it time to secure the fourth and final tranche of notes issue as well. We’ll update you as the transaction comes to market and you can read all about Sanders Re Ltd. (Series 2014-1) and every other catastrophe bond, including all those sponsored by Allstate, in the Artemis Deal Directory.