US primary insurance giant State Farm has sponsored its first 144A catastrophe bond of 2022, with a $300 million Merna Re II Ltd. (Series 2022-1) issuance demonstrating its continued appetite for capital markets backed reinsurance protection.
The new Merna Re II 2022-1 catastrophe bond will provide State Farm with three years of additional collateralized catastrophe reinsurance protection.
The perils will be US focused and we would imagine this is an earthquake cat bond, given State Farm’s habit of sponsoring a late March deal each year covering that type of risk.
But, last year, in 2021, State Farm sponsored two catastrophe bonds in the end, the first year it had done so since back in 2010.
State Farm’s first deal in 2021 was a quake focused $350 million Merna Re II Ltd. (Series 2021-1) transaction, but its second deal of last year was a Merna Re II Ltd. (Series 2021-2) that provided it with $300 million of Florida named storm and severe thunderstorm protection.
Hence, for this new $300 million Merna Re II Ltd. 2022-1 cat bond, we’re going to categorise it as US property catastrophe risks in our charts and data, which we will update should greater clarity on the covered perils become available later.
As with every Merna Re cat bond sponsored by State Farm since 2016, the issuance was relatively privately marketed and placed with a select group or club of initial investors.
Now, the resulting $300 million of notes will be more broadly available on the cat bond secondary market.
So, State Farm continues to source collateralized reinsurance capacity from insurance-linked securities (ILS) funds and investors on a privately marketed and placed basis.
Merna Re II Ltd., a Bermuda domiciled special purpose insurer, has issued and sold $300 million of Series 2022-1 Class A notes to cat bond funds and ILS investors, with the proceeds used to collateralize an underlying reinsurance agreement between the issuer and the sponsor State Farm.
The notes will provide State Farm with property catastrophe reinsurance (possibly US quake focused) on an indemnity trigger and we expect per-occurrence basis, with the protection running across a three-year term to early April 2025.
State Farm is a very regular sponsor of cat bonds, having now returned to the catastrophe bond market each year since 2013 with a Merna Re cat bond deal.
State Farm’s private, or club based approach to the catastrophe bond market, enables it to develop deeper relationships with key ILS investor and ILS fund markets, we’re told, especially with those that also play an important role in its traditional reinsurance renewal.
This club approach to marketing its cat bonds can also help provide important pricing indications, from across both traditional and ILS markets, helping a sponsor like State Farm identify the best sources of and cost-of-capital for its overall reinsurance program.