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Allstate launches $2bn Willow Re programme

A flurry of (re)insurance activity in the capital markets last week ended with US giant Allstate Insurance launching a $2bn shelf catastrophe programme through a Cayman Island-based special purpose reinsurer Willow Re.

 The deal underlines the enormous appetite for (re)insurance securitisations by the capital markets in a week which has seen the deals get larger and larger. Possibly the largest cat bond ever, the $4bn Merna Re, is in the pipeline from State Farm (see article 2) as it seeks risk transfer across its portfolio. Meanwhile, in Europe Glacier Re issued $75mn in notes under a shelf programme providing it with retrocession cover from windstorm and earthquakes that could provide the company with as much as $1.5bn in cover in the future (see article 8).

Elsewhere Bermudian-headquartered Lancashire Holdings Ltd has entered into a contingent capital deal giving it the right to raise a minimum of $49mn any time throughout this year’s hurricane season (see article 5).

And Nephila Capital, the Bermuda-based investment manager specialising in catastrophe reinsurance and weather risk, has announced the launch of Gamut Re (see article 6), the first investment vehicle to be funded using collateralised debt obligations (CDOs). The $310mn funds raised by Gamut Re will be used to source a diversified portfolio of natural catastrophe risks which will be managed using collateralised debt obligations.  

Allstate’s Willow Re has made an initial issuance of $250mn principal-at-risk variable rate notes.

The notes provide protection for Allstate over a three-year period when the event index value caused by a US hurricane event occurring in Connecticut, New Jersey and New York exceeds a specific attachment point.

The index will be calculated from the industry loss amount applicable to the covered event as published by the Property Claim Services. The initial trigger amount is $1.6bn, and the initial exhaustion amount is $2.345bn. AIR Worldwide will remodel the transaction each year to keep the probability of attachment at a level equal to or less than the initial probability of attachment. The trigger and exhaustion amounts will change accordingly to reflect this annual reset.

The issue follows the growing trend for (re)insurers to launch shelf programmes, where companies seek approval to issue more than they currently require to enable fast access to cover, if needed in the future.

Indeed, in recent research Lane Financial noted that 70 percent of issuance in the last 12 months has come from shelf programmes.

Rating agency AM Best has assigned a debt rating of bb+ to the $250mn Class B notes and Standard & Poor’s assigned a senior secured debt rating of BB+.

AM Best said: “The rating takes into consideration an assessment of (1) Allstate’s ability under the reinsurance agreement to make periodic payments including premium payments (interest spread and swap spread), expense reimbursements and early termination payment to the issuer, and (2) the swap counterparty’s ability to meet its obligations under the swap agreement.”

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