US primary insurance giant Allstate making progress with its latest catastrophe bond, a Sanders Re III Ltd. (Series 2022-2) multi-peril issuance that seeks Florida focused reinsurance coverage for the carrier and now looks like it could upsize slightly to $275 million, but with pricing at the top-ends of guidance.
Allstate returned to the catastrophe bond market earlier in May, with its first Florida cat bond in two years as it seeks to bring more capital markets backed coverage into its Florida reinsurance tower in time for this mid-year renewal.
As a reminder, this is the second cat bond from Allstate in just two months, as the company secured $550 million of nationwide US, excluding Florida, reinsurance from a Sanders Re III Ltd. (Series 2022-1) transaction.
Allstate has typically sponsored a Florida-focused cat bond to protect its underwriting subsidiaries Castle Key Insurance, Castle Key Indemnity, as well as National General and Northlight brand entities every three years, but this time it has elected to come back after two, perhaps reflecting the more challenging Florida reinsurance marketplace.
Using its Sanders Re III Ltd. special purpose insurer, Allstate came back to market seeking at least $250 million of Florida catastrophe reinsurance protection from this new Series 2022-2 issuance.
We’re now told that the size may increase a little, with up to $275 million of protection now sought across the two tranches of bullet bonds being issued.
These two tranches of notes will offer Allstate’s subsidiaries reinsurance protection on an indemnity trigger, per-occurrence basis and structured to cascade as other reinsurance beneath is eroded, across a three year term to the end of May 2025.
The covered perils under the reinsurance will be named storm, earthquake, severe thunderstorm, volcanic eruption, meteorite impact and wildfires impacting the state of Florida, similar to previous Florida-focused cat bond deals.
The Class A tranche of notes is now targeted as between the original $125 million up to $150 million in size we’re told, with their initial expected loss of 0.67%. These notes were first offered to investors with price guidance in a range from 5.75% to 6.5%, but we’re now told this guidance has been fixed at the top-end of 6.75%.
The Class B tranche of notes are similar, but riskier. They also began at $125 million in size, but are now pitched at from $100 million up to that amount, so could actually shrink slightly They have an initial expected loss of 1.79% and were first offered to investors with price guidance in a range from 7.75% to 8.75%, but that guidance has now also been fixed at the top-end of 8.75%, we understand.
The final Class C tranche of one-year zero-coupon notes, which are also indemnity per-occurrence, but not cascading and have a particularly high initial expected loss of 17.43%, are said to still being issued, but we’re told information on their size and pricing has still not been disclosed to our sources.
As a result, it looks like this cat bond will be up to $275 million in size just across the first-two bullet bond tranches, but actually bigger if this higher-risk and lower-down one-layer is also successfully placed, which sources say it is expected to be.