U.S. Coastal Insurance Company, a New York domiciled homeowners insurer that specialises in insuring coastal properties, was the sponsor of the recently completed $53.3 million Eclipse Re Ltd. (Series 2018-01A) private catastrophe bond, according to our sources.
U.S. Coastal Insurance Company carries a significant amount of coastal named storm exposure, making the tapping of the capital markets for collateralized reinsurance through a private cat bond issue likely an efficient option for the firm.
The insurer is administered by and shares its management team with managing general agency Cabrillo Holdings and is a known user of fully-collateralized reinsurance coverage, having had a number of ILS fund managers participating in its 2017 reinsurance program.
It’s 2018 renewal looks to have followed suit, with a share of the overall catastrophe reinsurance program shared with ILS funds through the Eclipse Re issuance, using the platform established by the Horseshoe Group and Rewire Securities LLC.
U.S. Coastal’s exposure is predominantly in New York and New Jersey states, where of course the coastal impacts of hurricane or superstorm Sandy were significant.
Hence it buys a reasonable sized property catastrophe reinsurance program, on an all natural perils and ultimate net loss basis, which is where the Eclipse Re deal investors participated.
The 2018 reinsurance program has been designed to cover U.S. Coastal up to $250 million of losses and we understand that the three tranches of notes issued under the Eclipse Re 2018-01A transaction sit on top of each other and have cascading features, so that they drop down to replace eroded coverage for second and subsequent catastrophe events.
Here’s how we understand the three Series 2018-01A tranches of notes to be position.
Beneath the collateralized coverage provided by the Eclipse Re private cat bond U.S. Coastal has a $2 million retention and then a $7 million inuring layer of traditional reinsurance, both of which have to be eroded before the collateralized layers begin to cascade down.
The first $4.8 million of SAC EC0010 tranche attaches at $9 million of losses, covering 30% of a $16 million layer, and pays investors a net rate on-line equivalent of 7.5%, we understand.
The second $10.5 million SAC EC0011 tranche sits above that, attaching at $25 million and covering 30% of losses up to $60 million, while paying investors a rate on-line equivalent of 5%, our sources said.
The final and largest $38 million SAC EC0012 tranche is at the top, attaching at $60 million of losses and again covering 30% of the $190 million layer up to the top of the program at $250 million. This tranche pays investors a rate on-line equivalent of 3.25%, we are told.
We’re also told that U.S. Coastal was the sponsor of 2017’s also $53.3 million Eclipse Re Ltd. (Series 2017-02A) transaction, with this new issuance a renewal of that syndicated ILS market backed reinsurance protection for the insurer.