State Farm prices $1bn of Merna Re II 2024-1 catastrophe bonds
We’ve learned that US primary insurance giant State Farm has now priced $1 billion of new catastrophe bond notes under a Merna Re II Ltd. (Series 2024-1) issuance, which we understand will provide reinsurance for losses from multiple perils through a transaction that will settle next week.
Sources have told Artemis that State Farm has been in the catastrophe bond market for a number of weeks looking to secure a significant new source of multi-year fully-collateralized reinsurance to protect it across a range of its peak exposures.
Details are limited with this latest Merna Re II 2024-1 catastrophe bond from State Farm being marketed to a group of investors and not as broadly offered as most cat bond deals are these days.
We’re told that State Farm has continued to adopt its strategy for semi-private, or club based issuances in the catastrophe bond market.
Over time, this has benefited the insurer as it has sought to develop deeper relationships with key ILS investor and cat bond fund markets, while also gathering important pricing indications from the capital markets, that can help to inform its broader reinsurance renewal purchases as well.
So, this is still a 144A cat bond format, but offered on a more privately marketed and placed basis.
Find details about all of State Farm’s catastrophe bonds in the Artemis Deal Directory.
At $1 billion in size, this is now the second largest catastrophe bond issuance in State Farm’s long history of tapping this marketplace.
Right back in 2007, the insurer secured a $1.1 billion cat bond, which was its first in the Merna Reinsurance series of issues.
It’s also the second largest cat bond issuance of 2024, coming only behind TWIA’s recent $1.4 billion deal.
We are told that for this latest cat bond, State Farm is again using its Merna Re II Ltd. special purpose insurer based in Bermuda.
Merna Re II Ltd. has issued three tranches of notes, which have been sold to investors and the proceeds used to collateralize reinsurance agreements with State Farm.
In total, the new Merna Re II 2024-1 cat bond will provide State Farm with a $1 billion source of indemnity reinsurance over a term running to the end of June 2027, so a roughly three-year term.
The three tranches are split into, a $250 million Class A tranche of notes, a $300 million Class B tranche of notes, and a $450 million Class C tranche.
Information is currently limited, although we do hope to glean more in time, but we are told the Class A tranche covers Florida wind related risks, so named storms and severe thunderstorms, although we cannot be 100% certain on this or the perils covered by the other tranches.
It would make sense for one tranche to cover those perils, given the next maturity in State Farm’s outstanding cat bonds is a $300 million Florida focused Merna Re II Ltd. (Series 2021-2) that matures in August.
We are informed that the perils differ across the tranches and that all tranches provide indemnity protection, which is typical of State Farm’s use of catastrophe bonds.
We understand that the spread pricing for each of the three tranches is as follows, Class A 7.25%, Class B 8.75%, and Class C 8.5%.
The only other detail we’ve learned so far is that Aon Securities was the lead bookrunner for this latest State Farm cat bond transaction.
As explained, this new $1 billion Merna Re II 2024-1 catastrophe bond issuance is due to settle next week, after which we hope to be able to source more details to fill out our Deal Directory entry.
State Farm currently has $1.55 billion in risk capital outstanding across its in-force Merna Re catastrophe bonds.
So, once this settles next week, that will rise to $2.55 billion which will take State Farm right up to one of the top places in our catastrophe bond sponsor leaderboard.
We’ll update you as and when any further information on this latest cat bond from State Farm emerges.
We’ve added this new $1 billion Merna Re II Ltd. (Series 2024-1) catastrophe bond to the Artemis Deal Directory, where you can read about and analyse details of almost every cat bond ever issued.
