Vermont Mutual seeks first cat bond with $100m Baldwin Re

Yet another new catastrophe bond sponsor is entering the market this year, with Vermont Mutual Insurance Company seeking $100 million of reinsurance from a Baldwin Re Ltd. (Series 2021-1) cat bond that will cover it against losses from multi-peril events in certain north east US states.

Vermont Mutual Insurance is one of the oldest property and casualty insurers in the United States having been established in 1828.

The mutual insurer underwrites predominantly through itself and subsidiaries Northern Security Insurance Company, Inc. and Granite Insurance Company, all of which will be covered by the Baldwin Re catastrophe bond, our sources said.

The company has registered Baldwin Re Ltd. as a special purpose vehicle in Bermuda for this first catastrophe bond issuance and Vermont Mutual Insurance expects to secure a multi-year source of collateralized catastrophe reinsurance from the capital markets to cover itself and its affiliates and subsidiaries.

Baldwin Re Ltd. will issue a single Series 2021-1 Class A tranche of notes to provide $100 million or more of reinsurance, with the notes to be sold to cat bond investors and the proceeds from the sale used to collateralize the underlying reinsurance agreements.

The Baldwin Re 2021-1 catastrophe bond will provide Vermont Mutual Insurance and subsidiaries with protection against losses from certain catastrophe events in the US Northeast, named storm, earthquake, severe weather, fire and other peril events.

The covered area is the north east US states where the company operates, namely Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island and also Vermont.

The notes will provide Vermont Mutual Insurance with indemnity reinsurance protection from the capital markets, on a fully-collateralized and per-occurrence basis, across a four-year term to the end of June 2025, we’re told.

The currently $100 million of notes will attach at $450m of losses to the insurer and exhaust at $850m, we understand, which gives an initial attachment probability of 1.311% and expected loss of 0.91%.

The notes are being offered to cat bond investors with price guidance in a range from 2.75% to 3.25%, we understand.

It’s encouraging to see another first-time sponsor entering the catastrophe bond market in 2021, as the attractive rates for securing reinsurance from the fully-securitized capital markets continue to draw companies in.

It’s also important to note the “top-layer” nature of some of these new cat bond deals, as insurers look to fill the higher-layers of their programs in a more efficient manner.

If cat bonds stick at these levels, we could see some insurers using the capital markets on a sustained basis for the higher-layers of their catastrophe programs, where the risk level meets cat bond investor appetite and so they can benefit from the cost-efficiency of capital markets risk capital.

We’ll keep you updated as this new Baldwin Re Ltd. (Series 2021-1) catastrophe bond comes to market and you can read all about this and every other deal in the Artemis Deal Directory.