State Farm sponsors $ 350 million in cat bonds for the New Madrid earthquake Merna Re II for 2021

US primary insurance giant State Farm is back in the 144A disaster bond market for another slice of New Madrid Earthquake Reinsurance Protection to sponsor the latest capital markets deal, the $ 350 million Merna Re II Ltd (2021 Series-) 1). All recent Merna Re cat bonds sponsored by State Farm, the issue was launched relatively privately with a select group of early investors, although the $ 350 million of the resulting notes is now available more widely in the secondary cat bond market.

This is the sixth year in a row that State Farm has chosen to acquire guaranteed reinsurance capacity from Insurance Linked Securities (ILS) and investors on a private and existing market basis.

From 2016 onwards, State Farm followed this club deal approach, choosing to have its new bond transactions closely marketed to a select group of catastrophe investors.

State Farm’s use of disaster bonds to protect reinsurance has not changed, however, with Merna Re’s transactions continuing to provide the insurer with a cover against losses from the New Madrid area earthquakes.

Merna Re II Ltd. , A Bermuda-based special purpose insurer, sold $ 350 million in Class A banknotes and sold them to cat bond funds and ILS investors, with the proceeds used to secure a basic reinsurance agreement between the issuer and sponsor State Farm.

The notes will provide State Farm with earthquake damage reinsurance against events in the New Madrid fault zone on a pay-as-you-go basis, with protection operating over a three-year period through early April 2024.

We understand from sources that the banknotes have an expected loss of about 1.8%, which makes them riskier than the previous two years for Merna Re seismic bonds.

The banknote was priced to pay a coupon to the investors of about 3.75%, as we understand that.

This latest Cat bond is the 12th issue from State Farm to use the name Merna Re and the Thirteenth Bond operation we covered from the carrier, dating all the way back to its first issue in 2000.

State Farm has been a regular sponsor, having now returned to the disastrous bond market every year since 2013, making it nine years in a row the insurer sponsored the Merna Re cat bond deal.

State Farm’s private or club-based approach to engaging in the catastrophe bond market has helped develop deeper relationships with the major ILS investors and ILS fund markets, as we understand it, especially with those who also play a major role in the renewal of traditional reinsurance.

This club’s approach to marketing its bonds can also help provide important pricing indicators, from all the traditional and ILS markets, helping the sponsor determine the best source and cost of capital for a comprehensive reinsurance program.

We have added a new disaster bond, Merna Re II Ltd. (Series 2021-1) is worth $ 300M to our Deal Guide, where you can read and analyze nearly every cat bond ever issued.

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