Selective Insurance, the U.S. property and casualty insurer, has entered the catastrophe bond market for the first time, seeking $200 million or more in multi-risk guaranteed reinsurance from a High Point Re Ltd. (series 2023-1) emission.
This is the first catastrophe bond sponsored by US insurer Selective Insurance Company, as the company moves towards a fully securitized Rule 144a reinsurance source backed by capital markets.
The insurer is, however, no stranger to guaranteed reinsurance, because we understand that the company has been a buyer under its reinsurance tower agreements.
Now, Selective is seeking a $200 million catastrophe bond to add to its reinsurance arrangements, High Point Re Ltd. being recently registered in Bermuda to be the issuer of its first catastrophe bond transaction.
For its Selective Insurance Company entity, the company seeks to sponsor the issuance of a single tranche of Series 2023-1 cat bond notes, to provide it with multi-year, multi-risk reinsurance protection.
The catalytic bonds that High Point Re Ltd. will issue are designed to provide Selective with a three-year source of reinsurance through the end of 2026, covering it against losses due to storms, earthquakes, severe thunderstorms, winter storms, wildfires, meteorites in the United States . volcanic impacts and eruptions, we understand that.
We are told that the area covered by the High Point Re catalytic bonds spans the entire United States, with the exception of key cat-prone states of California, Florida, Louisiana and Texas. .
Coverage will be on an indemnity and per occurrence basis, sources said, with the tranche of $200 million or more Class A notes attaching their reinsurance protection against a $700 million loss and covering a portion of the losses of up to $1.2 billion for Selective.
This means that the Class A High Point Re Series 2023-1 Catalytic Bonds will have an initial fixing probability of 1.13%, an initial expected basis loss of 0.77% and we understand that they are being offered to investors with spread price indications within a range. from 5% to 5.75%.
Despite this catalytic obligation excluding the key wind-prone states of Florida, Louisiana and Texas, we are told that named storms contribute to the majority, more than 90%, of the expected ticket loss.
Selective is just the latest new sponsor in the catastrophe bond market and, as a significant buyer of catastrophe reinsurance protection, it is encouraging that this first High Point Re catastrophe bond could become a key part of insurers’ protection at the future.