American Family Mutual Insurance Company, or AmFam for short, is back in the catastrophe bond market for the fourth year in a row, this time seeking $150 million or more in capital market-backed multi-risk catastrophe reinsurance, with a new Four Lakes Re Ltd. (Series 2023-1) issuance of catalytic bonds.
American Family (AmFam) has now sponsored a Four Lakes Re catastrophe bond each year since 2020 as it integrates capital markets more deeply into its reinsurance arrangements.
However, it will actually be Sixth participation of American Family in the catastrophe bond marketbecause the insurer had sponsored Mariah Re’s two catastrophe bonds in 2010, which had both were triggered by severe losses from tornadoes.
For this 2023 cat bond, AmFam is using the same Bermuda-based special purpose insurer, Four Lakes Re Ltd., with the vehicle to offer two tranches of notes to investors, we understand.
Under the agreement, AmFam aims to secure at least $150 million in multi-peril catastrophe protection in the United States, covering it and its subsidiaries against losses due to storms, earthquakes, severe thunderstorms, winter storms and wildfires in the United States, the same range of perils as its catalytic bond issue a year ago.
The Four Lakes Re 2023-1 cat bond will provide AmFam with event-based, indemnification trigger-based reinsurance over a period of three calendar years, from January 2024 to the end of December 2026, we are told.
A tranche of Class A notes currently worth $100 million has an attachment point at $2 billion in losses and will cover a stock up to $3 billion, giving them an initial attachment probability of 0, 71%, an initial expected loss of 0.63% and these tickets have spread. price guidance in a range of 5% to 5.75%, we understand.
A current $50 million tranche of Class B notes would be tied to a level below $950 million in losses, running out at $1.5 billion, so it is riskier, giving them a higher probability initial fixing of 4.19%, an expected initial loss of 2.44% and these notes have spread. price indications in a range of 9% to 9.75%, it is said.
It is encouraging to see AmFam seeking to continue the layering of catastrophe bond protection through its reinsurance tower, now with four annual issuances completed as part of the Four Lakes Re transaction series.
The 175 million dollars Four Lakes Re Ltd. (Series 2020-1) expires at the end of this year, so AmFam would probably want to replace this expiring coverage, if it can.
Of course, the price is proportionately higher than this transaction, given that reinsurance and hedging costs for catalytic bonds are now much higher than at the end of 2020.