United (UPC)’s Armor Re II 2020 cat bond pulled on lack of support

We’re told that the latest catastrophe bond from United Insurance Holdings (UPC Insurance) Armor Re II Ltd. (Series 2020-1) has failed to get sufficient investor support, so was pulled from the market and now won’t be issued.

United (UPC) returned to the insurance-linked securities (ILS) market in late February, looking to secure a new catastrophe bond issue for 2020 with a $130 million multi-peril Armor Re II Ltd. (Series 2020-1) transaction.

Having 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, this cat bond was always likely to be a test of market appetite for Florida wind risk from a sponsor that had received significant support in terms of loss payments over recent years.

The Armor Re II 2020-1 cat bond issuance sought a $130 million source of catastrophe reinsurance protection against losses from U.S. named storms and U.S. earthquakes across a three-year term for United (UPC).

While the transaction, which was designed to sit at the top of United (UPC)’s reinsurance tower, the pricing it offered did represent an increase from prior year deals, as we explained in our earlier article on the transaction.

But it seems that may not have been sufficient and we’re told that investor support was not sufficient to complete this Armor Re II cat bond issuance at a size that would have been economical.

We understand that support was not as strong as hoped for during the early phase of marketing for this cat bond deal.

The result was that the book failed to build sufficiently in the early stages and while there had been an appetite to get the deal done at a smaller size, even that failed.

This suggests a lack of investor appetite for this catastrophe reinsurance related risk at the offered pricing level.

What that says for the June renewal season remains to be seen, but it could be an indicator of a much stronger investor requirement for returns in the Florida reinsurance market in 2020.

We don’t have any insight as to the precise reason for pulling the deal at the last minute, but sources suggest that the investor appetite was not high enough to enable United (UPC) to secure the cat bond at sufficient size to make it economical to issue.

As a result, there’s a strong likelihood that the sponsor will have turned to a traditional reinsurance arrangement to secure this layer of its program.

It’s possible, of course, that this layer may end up secured from the capital markets anyway, as a collateralised reinsurance source or ILS fund could be the eventual backer.

It’s rare for catastrophe bonds to get pulled prior to issuance, in fact the last time this happened was an Allstate sponsored Sanders Re deal back in 2015 that tried to push the envelope by looking for a 7-year coverage term.

That deal also failed to get to market as investor support was not strong enough, with the sponsor turning to a traditional reinsurance arrangement instead.

You can read about every catastrophe bond transaction ever issued in the Artemis Deal Directory.