American Integrity Insurance Company of Florida, Inc. has had to restructure its fifth catastrophe bond issuance, Integrity Re Ltd. (Series 2022-1), through which it is seeking Florida named storm and hurricane reinsurance protection from the capital markets.
It went very quiet since the cat bond launched, with no obvious updates on the issuances progress. But we’re now told the bond has had to be restructured, with one tranche pulled and changes to its attachment, in response to investor feedback, with the issuance shrinking as a result.
Now, the higher-risk tranche of notes will no longer be issued, we’re told, while the other tranche has had its metrics adjusted, and looks set to price at the top-end of initial guidance.
With the riskier Class B tranche of notes now pulled, this Integrity Re Series 2022-1 cat bond will still provide American Integrity with reinsurance protection against named storm events in Florida, on an indemnity and cascading per-occurrence basis and over a three-year term, so covering three Atlantic hurricane seasons.
However, it’s now a cat bond that, on a first-event basis, will sit very high up in American Integrity’s reinsurance tower, so a more risk-remote investment proposition.
With the catastrophe bond market having experienced spread widening in recent weeks and investors remaining risk averse to lower layers of reinsurance towers, it’s no surprise to see this restructuring happen.
The remaining Class A tranche of notes continues to have a $75 million target in terms of size, with this coverage set to inure to reinsurance beneath and its attachment cascading down as layers of protection are eroded by first and subsequent events.
The $75 million Class A tranche of notes have had their risk metrics adjusted, with the initial expected loss slightly higher now at 1.41% at the base case and the price guidance now fixed at the top of the original range, at a coupon of 6.75%.
We understand that on a first-event basis, it would require a hurricane causing American Integrity roughly $980 million ground-up loss for these Series 2022-1 Class A notes to attach.
It’s good to see the sponsor persisting with this catastrophe bond issuance, despite the clear challenges in getting the riskier layer issued.
The coverage the Class A notes provide will replace a maturing $79 million named storm and severe thunderstorm cat bond that American Integrity had sponsored back in 2018.
As with all of its catastrophe bonds, American Integrity is working with global reinsurance firm Hannover Re to front the capital markets for it.