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State Farm completes private $300m Merna Re cat bond renewal


U.S. primary insurer State Farm has confirmed its commitment to sourcing reinsurance through the ILS market with a privately placed renewal of a maturing catastrophe in the form of a Merna Re Ltd. (Series 2016-1) transaction.

The Merna Re 2016-1 cat bond transaction has been privately marketed to a select group of insurance-linked securities (ILS) funds and investors, we understand, hence details of the transaction itself remain limited.

We’re told this was partly a response to the softened reinsurance pricing that State Farm could have accessed instead of a cat bond at this renewal, with the insurer electing to keep issuance costs low through a private club type deal. We also understand that State Farm sought to encourage those that participated in the cat bond to also participate in its traditional renewal.

State Farm’s Merna Re IV Ltd. cat bond, issued in March 2013, matures on the 8th April this year, hence this Merna Re 2016-1 cat bond is understood to be a straight renewal for that transaction.

The covered perils ceded to ILS investors through this Merna Re 2016 cat bond are U.S. earthquake risks, covering the New Madrid fault region in the mid-west, the same peril covered by the maturing 2013 cat bond deal.

It’s also safe to make the assumption that this Merna Re 2016-1 is an indemnity transaction, given State Farm’s other cat bonds in recent years have all provided the insurer with a source of indemnity reinsurance protection.

We’re told that this deal priced at 2.25%, 25 basis points below the maturing 2014 Merna Re deal, however we cannot confirm that 100%. The cat bond has a three-year term, with the notes coming due for maturity at the 8th April 2019.

Other facts on this transaction such as expected loss and attachment point are not known at this stage, due to the private nature of the deal.

State Farm also has $600m of in-force catastrophe bond sourced reinsurance protection from its $300m Merna Re V Ltd. and $300m Merna Re Ltd. (Series 2015-1) transactions, so with the completion of this 2016 issuance the insurer maintains a $900m capital markets backed collateralised reinsurance source.

The $300m of notes issued by Merna Re Ltd. through this Series 2016-1 issuance have been admitted for listing on the Bermuda Stock Exchange (BSX).

We’ve listed the $300m Merna Re Ltd. (Series 2016-1) transaction in the Artemis catastrophe bond Deal Directory and it has been included in our catastrophe bond market statistics. If further details become available the listing will be updated.

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