Aon’s Randolph Re issues $45m wildfire cat bond, likely for Mercury

Aon’s private catastrophe bond platform Randolph Re has completed a new issuance of $45 million of Randolph Re (Series 2023-3) private cat bond notes that are exposed to wildfire risks, for an unnamed sponsor that we assume will again be California headquartered property casualty insurer Mercury Insurance.

As ever, information is limited as this new Randolph Re private cat bond issuance from Aon’s platform has only just come to light.

But, we suspect this to be a continuation of the private cat bond placements that provide a capital market backed source of wildfire reinsurance protection to property casualty insurer Mercury Insurance.

Recall, that in July 2020 we documented a $50.25 million Randolph Re (Series 2020-1) private catastrophe bond transaction that we later learned covered California wildfire risks.

The following year, in July 2021, we reported that Mercury Insurance had secured $50.7 million of California wildfire reinsurance protection through a Randolph Re (Series 2021-1) private catastrophe bond issued using Aon’s platform.

Then, a year ago in July 2022, another wildfire exposed deal came out of Aon’s platform, with the $25 million Randolph Re (Series 2022-1) private cat bond again suspected to be for California headquartered property casualty insurer Mercury.

Now, for the fourth year in a row the Randolph Re platform has issued another series of private cat bond notes, at the exact same time of year and again we’ve learned that wildfire risks are the covered peril and sources said that California is the location of the largest exposure concentration for the cat bond notes.

Private placement cat bonds through Randolph Re are issued using a cell of Aon’s special purpose vehicle White Rock Insurance (SAC) Bermuda Ltd. and the brokers’ insurance management unit Aon Insurance Managers services the transactions.

Aon launched its Randolph Re private cat bond platform in late 2019, becoming the brokers’ dedicated platform for issuance of private ILS transactions, with Aon Securities acting as both structurer and bookrunner for these issues as well.

Mercury Insurance is a P&C specialist insurer that underwrites a large portfolio of property risk in wildfire exposed parts of California and has been utilising the ILS market for reinsurance for some years now.

This use of ILS capacity developed into accessing catastrophe bond investors using Aon’s Randolph Re issuance platform to secure a slice of the wildfire protection required through private cat bonds.

This fourth Randolph Re wildfire exposed private cat bond issuance saw Aon’s White Rock Insurance (SAC) Ltd., acting on behalf of its segregated account Randolph Re 2023-2 and under the Randolph Re Program, to issue $45 million of Series 2023-3 notes.

The Series 2023-3 insurance-linked notes issued by Randolph Re are due as of July 7th 2024, which ties in very closely with the three previous deals, as all had a July 6th maturity date.

As a result, given the wildfire nature of the exposure and the dates lining up so closely, we suspect this latest Randolph Re private cat bond supports a one-year fully collateralised reinsurance agreement that has been securitised for the cedent, which is again likely to be Mercury Insurance.

The previous deals all provided the cedent with wildfire reinsurance protection focused on California, covering fire losses following an earthquake as well and were structured to provide per-occurrence reinsurance on an indemnity trigger basis.

We’re also told that the notes are zero-coupon in nature and that the pricing indicated a spread equivalent of roughly 7%, although the exact figures are not available to us.

So it’s good to see the capital markets continuing to offer an effective and alternative source of wildfire reinsurance, through this series of Randolph Re private cat bonds.

It’s also encouraging to see the deal size bouncing back in 2023, suggesting more of an appetite for the risk in the current market and pricing environment.

This being a 2023-3 issuance from Randolph Re begs the question, what happened to the two before?

Well, we now know that the Groupama private cat bond that used the Randolph Re platform was the Series 2023-1 issuance from the structure, but as of this time we haven’t seen a 2023-2 deal come to market.

You can read all about this Randolph Re (Series 2023-3) private catastrophe bond transaction and every other cat bond in the Artemis Deal Directory.