Allstate’s $150m Sanders Re II 2021-2 Class B extended on aggregate losses

Despite its price having recovered back almost to par across catastrophe bond pricing sheets in recent weeks, US insurer Allstate’s $150 million Class B tranche of notes from the Sanders Re II Ltd. (Series 2021-2) issuance that provide both occurrence and aggregate reinsurance has seen its maturity date extended by three years.

The scheduled maturity date for these notes was this week, the only aggregate cat bond tranche maturing for Allstate at the end of the latest risk period at March 31st.

They also sit lowest down of the cat bonds providing both annual aggregate coverage in the Allstate reinsurance tower, alongside a Series 2022-1 Class C tranche that remain in-force until next year.

As we reported in March, Allstate reported a relatively low level of catastrophe losses for February, meaning qualifying losses under its aggregate Sanders Re catastrophe bonds were still said to be a reasonable distance from their attachment points.

With the annual risk period now ended at March 31st, we were told these Allstate aggregate cat bond notes were being viewed as safer and unlikely to attach their coverage for the insurer.

Recall that, these aggregate Sanders Re cat bond tranches came under pressure with the significant Los Angeles, California wildfire event in January.

Allstate estimated a significant $1.08 billion pre-tax catastrophe loss estimate for January, following the devastating wildfires.

The insurer also said it anticipated a $1.4 billion reinsurance recovery due to the event.

After those fires, a number of the Sanders Re aggregate cat bond tranches were marked down, significantly in some cases, on cat bond broker secondary pricing sheets.

Three tranches of outstanding Sanders Re aggregate catastrophe bond notes sponsored by Allstate were among those that saw the more meaningful declines in secondary market pricing immediately after the wildfires.

The riskiest of the aggregate cat bond tranches, which includes this 2021-2 Class B tranche, sat at an attachment of $3.6 billion of qualifying aggregate losses for the risk period that ran to the end of March 2025.

In our March article, we said that we understood the aggregate applicable loss for the now-ended risk period remained a reasonable distance from the trigger point, although we did not have a specific figure for it at the time.

Reflecting the distance from attachment, we’ve now learned that these Sanders Re II 2021-2 Class B notes saw their secondary market pricing climb back towards par through March, at the end of the month being marked in the very high 90’s, so just below par.

Which implies the market did not anticipate this tranche, that was due to mature, would face any losses from the just-ended annual aggregate risk period.

But, seemingly Allstate must believe there is some uncertainty in the aggregate loss total, perhaps due to the chance of the wildfire loss creeping higher, or even other potential losses from over the course of the year to March 31st, as the insurer has now elected to extend the notes maturity, we have learned.

The full $150 million of Sanders Re II 2021-2 Class B cat bond notes have now had their maturity date pushed out three years, to April 7th 2028, we are told, as Allstate elected an extension event II under the terms of the reinsurance agreement.

The other outstanding aggregate cat bond tranches that Allstate has in-force and that covered losses through the 2024 into 2025 annual risk period also saw their prices rising through March on secondary pricing sheets, as the risk of loss in the last annual aggregate risk period was deemed reduced.

Allstate clearly feels there is enough risk of loss creep occurring that extending the maturity of the 2021-2 B notes is warranted, once again demonstrating that the extension feature of catastrophe bonds is a valuable way for a sponsor to retain coverage, while catastrophe losses are still developing.

From the investor side though, some may have felt these notes could have matured and been repaid, but we understand Allstate’s aggregate qualifying losses from the last risk period had reached sufficiently high to give it the option of extending the notes.

Also worth noting is that one tranche of Sanders Re aggregate cat bond notes that had matured a while ago and also had their maturity extended, have now been extended out further.

The $100 million of Sanders Re II Ltd. (Series 2020-1) Class B tranche of notes had been on-risk in a number of their annual aggregate risk periods and after the 2023 into 2024 year they had their maturity date extended out.

The notes had initial been extended by one year to April 7th 2025, but we’ve now learned that Allstate has elected to now extend the maturity out to April 7th 2027, for a partial limit of $25 million.

Which suggests that the remaining principal from these notes will be returned to cat bond investors that hold them.

Details of catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in our cat bond losses Deal Directory here.