US primary insurance giant State Farm has been back in the catastrophe bond market for additional capital markets supported catastrophe reinsurance in recent weeks, securing $450 million of protection across two series of notes issued, to provide multi-peril coverage to the company.
We’re told the insurer has sponsored a $250 million Merna Re II Ltd. (Series 2023-1) cat bond issuance and a $200 million Merna Re II Ltd. (Series 2023-2) cat bond issuance, bringing the pair to market at the same time, securing fully-collateralized reinsurance across a range of its peak exposures.
State Farm continues to expand the role of the capital markets within its catastrophe reinsurance towers, returning consistently to secure new protection from cat bond funds and their investors.
We understand that these latest cat bond issues saw State Farm continuing its semi-private, or club based approach to the catastrophe bond market, which has benefited the company as it has sought to develop deeper relationships with key ILS investor and cat bond fund markets.
They allow the insurer to gather important pricing indications from the capital markets, that can help to inform its broader reinsurance purchases as well, while securing fully-collateralized cover from insurance-linked securities (ILS) funds and investors, in a 144A cat bond format but on a little more privately marketed and placed basis.
Find details about all of State Farm’s catastrophe bonds in the Artemis Deal Directory.
Using its Merna Re II Ltd. special purpose insurer based in Bermuda, State Farm has secured two series of cat bond coverage at once, we’re told.
The insurer did this in 2022, when it sponsored two series at the same time in June of that year.
In total, $450 million of notes are set to be sold, with the proceeds destined to collateralize reinsurance agreements to the benefit of the insurer.
The first, a Merna Re Ltd. Series 2023-1 issuance of Class A notes, is sized to provide State Farm $250 million of reinsurance protection, we understand.
Information is relatively limited, but from what we understand from sources, this is a per-occurrence and indemnity trigger cat bond, designed to provide US named storm and earthquake cover on a first-event basis for all states (excluding California and Texas) and on a second-event basis for Florida named storms, across a three-year term to the end of June 2026.
We’re told that this is an interesting cat bond structure, designed to meet State Farm’s needs, and so only comes on-risk for Florida after a first-event has occurred, while we’re told it features a coupon step-up after that happens as well.
So it could be considered a layer of reinsurance protection that might replace other eroded covers at that stage. However, information is very limited, as we said, so we aren’t certain of the full details.
According to sources, the at-issuance spread for the $250 million of Merna Re Ltd. Series 2023-1 Class A notes has been finalised at 7.75%.
The second set of notes, which are the Merna Re Ltd. Series 2023-2 Class A notes issuance, is sized slightly smaller and will provide State Farm with $200 million of reinsurance, we understand.
These are also per-occurrence and indemnity in nature of their coverage, but provide State Farm with named storm reinsurance protection specifically for the state of Texas, over the same three-year term to the end of June 2026.
We understand the $200 million of Series 2023-2 Class A notes issued by Merna Re II will come with a spread that has now been priced at 10.25%.
It’s encouraging to learn that State Farm continues to innovate in the catastrophe bond space, as a long-standing sponsor with significant support from the market.
Impressively, once we incorporate these new cat bonds into our charts and data (they settle later this week), State Farm will rise to fourth in our catastrophe bond sponsor leaderboard for a time with $1.9 billion of Merna Re reinsurance risk capital outstanding.
That demonstrates this insurers’ reliance on the cat bond market for reinsurance protection, as well as the deep relationship it has built with the cat bond fund manager and investor community.
We’ve added the new $250 million Merna Re II Ltd. (Series 2023-1) and $200 million Merna Re II Ltd. (Series 2023-2) catastrophe bonds to the Artemis Deal Directory, where you can read about and analyse details of almost every cat bond ever issued.
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