State Farm has again secured its latest catastrophe bond coverage through a privately placed issuance of a $300 million Merna Re Ltd. (Series 2017-1) transaction, securing a renewed source of earthquake reinsurance protection from the capital markets.
We’re told that this eighth Merna Re cat bond issuance sponsored by U.S. primary insurer State Farm was placed with a group of insurance-linked securities (ILS) funds and investors and so not as broadly marketed as many transactions are.
State Farm’s last transaction in 2016 was completed in the same manner, as the insurer looks to keep its reinsurance costs as low as possible, electing to keep issuance costs low through a privately marketed club type deal. This also allows State Farm to build deeper relationships with key ILS investor markets, especially those that also participate in its traditional reinsurance renewal.
The covered perils ceded to ILS investors through this Merna Re 2017-1 cat bond are U.S. earthquake risks, likely covering the New Madrid fault region in the mid-west where State Farm has a significant exposure, the same peril as the insurers last few transactions.
State Farm’s $300m Merna Re V cat bond, which covered New Madrid earthquake risks and was issued in 2014, matures on the 7th April 2017. So we assume that this Merna Re 2017-1 transaction is a renewal for that slice of reinsurance coverage.
The Merna Re 2017-1 cat bond notes will feature an indemnity trigger, given State Farm’s cat bonds in recent years have all provided the insurer with a source of indemnity reinsurance protection.
This Merna Re 2017-1 cat bond has a three-year term, with the notes coming due for maturity at the 8th April 2020.
Other facts regarding this transaction, such as expected loss, attachment point and pricing, are not known at this stage due to the private nature of the deal.
It’s encouraging to see large insurer sponsors of cat bonds, such as State Farm, continue to return to the market on a regular basis, making the capital markets an increasingly important component of their reinsurance arrangements.
State Farm also has $600m of in-force catastrophe bond backed reinsurance protection from its $300m Merna Re Ltd. (Series 2015-1) and $300m Merna Re Ltd. (Series 2016-1) transactions, so this 2017 issuance sees the insurer maintain $900m of capital markets backed collateralised reinsurance sourced through cat bonds.