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United (UPC) returns for $130m Armor Re II 2020 catastrophe bond


United Insurance Holdings (UPC Insurance) is back in the insurance-linked securities (ILS) market for a fresh catastrophe bond issue for 2020, bringing a $130 million multi-peril Armor Re II Ltd. (Series 2020-1) transaction to market as it looks to expand on its capital markets backed reinsurance cover.

united-insurance-holdingsLast week we reported that United (UPC) has already renewed over 85% of its core catastrophe reinsurance program that renews at June 1st, in the hope of insulating itself against price increases by getting to market early.

As we explained in that article, one of the insurers in-force catastrophe bonds matures at the end of May 2020, the Armor Re II Ltd. (Series 2018-1) transaction, so a $100 million slice of its first event catastrophe program from the capital markets is also up for renewal.

So it’s encouraging to see a new transaction launching and United (UPC) looking to fully replace and slightly upsize on the maturing catastrophe bond coverage with this new Armor Re II 2020-1 transaction, as sources told us this morning.

The company’s Armor Re II Ltd. special purpose insurer will seek to issue a single tranche of Series 2020-1 Class A notes that will be offered and sold to ILS investors and the proceeds used to collateralise underlying reinsurance agreements to the benefit of United’s insurers.

The beneficiaries of the firm’s latest catastrophe bond deal will be subsidiaries United Property & Casualty Insurance Co., Family Security Insurance Co. and American Coastal Insurance to begin with, we understand.

United (UPC) is seeking a fully collateralised source of catastrophe reinsurance protection against losses from U.S. named storms and U.S. earthquakes across a three-year term with this arrangement, with the cat bond coming on-risk at June 1st this year.

The reinsurance protection will be afforded on an indemnity and per-occurrence basis, structured as cascading coverage as the insurers other recent catastrophe bonds have been, meaning the attachment level can adjust during an annual risk period, as qualifying loss events erode away any other layers of reinsurance protection that inure to the benefit of this cat bond.

As a result the coverage is seen to work more closely with other traditional reinsurance layers within the United (UPC) reinsurance program.

The issuance is targeting $130 million of coverage for the sponsor, through the sale of a single Class A tranche of Series 2020-1 notes.

The $130 million of Armor Re II 2020-1 Class A notes are set to attach at $25 million of losses (the tower retention) and sit above the inuring catastrophe reinsurance layers, with an initial attachment probability of 1.77% and expected loss of 1.64%, both at the base case.

We understand that this 2020 Armor Re II cat bond will effectively sit at the top of the reinsurance tower for United (UPC), even above the insurers 2019 cat bond deal, with the attachment point being around the $1.33 billion mark. We understand the layer it will cover is also sized at $130 million, which suggests the cat bond won’t upsize beyond its launch indication.

We’re told that the $130 million of notes are being offered to catastrophe bond investors with price guidance in a range from 6.25% to 6.75%.

Compared to the insurers 2019 cat bond that represents an uptick in pricing, especially considering this transaction will sit a little higher in the tower as well as being priced at a higher level.

United (UPC) is again coming out early to secure its June renewal catastrophe reinsurance needs, with this new cat bond set for issuance in March but not coming on-risk until June 1st.

We’ll update you as this $130 million Armor Re II Ltd. (Series 2020-1) catastrophe bond proceeds to market and you can read about this and every other cat bond transaction in our extensive Deal Directory.

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