Andover Companies seeks debut $125m Locke Tavern Re catastrophe bond

The Andover Companies, one of the largest and longest-standing mutual insurance groups in the Northeast US, has entered the catastrophe bond market for the first time, seeking $125 million or more in collateralized catastrophe reinsurance from a Locke Tavern Re Ltd. (Series 2023-1) issuance.

It’s encouraging to see another first-time cat bond sponsor coming to market, seeking to add securitized access to the capital markets as a complementary source of reinsurance protection.

We’re told the company will be using a newly established Bermuda based vehicle named Locke Tavern Re Ltd., that will be registered as a special purpose insurer (SPI) for the issuance of series of catastrophe bond notes.

Locke Tavern Re Ltd. will issue a single tranche of Series 2023-1 Class A notes, that will be sold to cat bond investors and the proceeds used to collateralize a reinsurance agreement between the issuer and The Andover Companies insurers.

We understand that the covered insurers are Merrimack Mutual Fire Insurance Company, Cambridge Mutual Fire Insurance Company, and Bay State Insurance Company to begin, while additional subsidiaries could be covered in future by the cat bond.

The issuance is targeted at $125 million in size, sources said, with this set to provide multi-peril US northeast catastrophe reinsurance, on a fully-collateralized basis, across a three-year term.

The covered perils are said to be Northeast US named storm, severe thunderstorm, winter storm, earthquake, while we understand the coverage will initially span the states of Connecticut, Illinois, Maine, Mass, New Hampshire, New Jersey, New York and Rhode Island.

The $125 million of Series 2023-1 Class A catastrophe bond notes issued by Locke Tavern Re Ltd. will provide The Andover Companies insurers with reinsurance on an indemnity trigger and per-occurrence basis, over their three year term.

We’re told the notes come with an initial attachment probability of 1.139%, an initial base expected loss of 0.919% and are being offered to cat bond funds and investors with spread guidance in a range from 5.5% to 6.25%.

This means an initial attachment point at $1.1 billion of losses for the first risk period, sources said, with the notes expected to cover a percentage of a layer of the reinsurance tower to exhaustion at $1.55 billion.

So, another new sponsor looks to catastrophe bonds during this reinsurance hard market, which should be encouraging for investors, as it’s clear the range of companies looking to catastrophe bonds is expanding and that is positive for market momentum, growth and expanding diversification within it.

You can read all about this new Locke Tavern Re Ltd. (Series 2023-1) catastrophe bond from Ariel Re, as well as details on over 900 other cat bond transactions in the extensive Artemis Deal Directory.