Sanders Re II cat bond targets $350m+ of reinsurance for Allstate

U.S. primary insurance giant Allstate is back in the ILS market for its first catastrophe bond issuance of 2019, targeting $350 million of both occurrence and aggregate reinsurance protection with a Sanders Re II Ltd. (Series 2019-1) transaction.

It’s a similar arrangement to Allstate’s last catastrophe bond in 2018, which also provided catastrophe reinsurance coverage across two sections (per-occurrence and annual aggregate) within a single tranche of notes.

For this 2019 transaction, a new special purpose insurance vehicle has been established for Allstate and this will be the first cat bond issuance from Sanders Re II Ltd.

As we understand it, the cat bond will provide Allstate and subsidiaries with collateralized reinsurance covering the same range of perils as its last cat bond in 2018, so it covers U.S. named storm, earthquake, severe weather, fire and other perils.

But this transaction will not cover any risks in the state of Florida, we’re told. Where as the previous 2018 deal for Allstate also excluded New Jersey for coverage.

The issuance is targeting $350 million of coverage across two tranches of notes, both of which will provide Allstate with a fully collateralized source of reinsurance on an indemnity trigger basis and across a four-year term, split into a $50 million Class A tranche and a $300 million Class B tranche.

Both tranches will provide per-occurrence and annual aggregate protection we understand, with the tranches offering sectioned reinsurance coverage to the insurer sponsoring the deal.

Coverage will be for Allstate’s personal lines insurance business, across both property and auto underwriting pools.

The Class B tranche is a much riskier layer of Allstate’s reinsurance tower, we’re told, while Class A is a more remote layer of the insurers risk.

The coverage is designed in an interesting structure, so as to provide greatest efficacy to the sponsor, with the occurrence and aggregate protection of each tranche triggering at different levels in the tower.

The currently $50 million of Class A notes would attach on an occurrence basis at $2.75 billion of losses and aggregate basis at $4.44 billion, we understand. Both will cover a $100 million layer, suggesting this tranche could double in size if Allstate wanted it to and ILS investor demand responds.

The Class A tranche has an initial expected loss of just slightly under 1% combined across the two sections of coverage, with price guidance targeted in a range from 4% to 4.5%.

The currently $300 million Class B tranche of notes would attach on an occurrence basis at the same $2.75 billion of losses and aggregate basis at $3.54 billion, we understand. But this tranche will cover a $400 million layer of Allstate’s reinsurance tower, suggesting it could grow if Allstate elects to

The Class B tranche has an initial expected loss of just slightly under 1.57% combined across the two sections of coverage, with price guidance targeted in a range from 11.25% to 12.25%.

The Class B tranche is much more exposed to the annual aggregate catastrophe risk in this cat bond, while the occurrence attachment probability is the same for both tranches of notes.

The design of the structure will provide useful reinsurance protection to Allstate, slotting neatly into its tower alongside its traditional layers of protection and being available to respond to large single catastrophe loss events as well as attrition caused by multiple smaller losses.

It will be interesting to see whether the insurer finds pricing attractive in the capital markets and whether the deal increases in size as a result.

You can read all about this new Sanders Re II Ltd. (Series 2019-1) catastrophe bond transaction from Allstate in the Artemis Deal Directory.