Vermont Mutual targets $100m with second Baldwin Re cat bond

Vermont Mutual Insurance Company has returned to the catastrophe bond market, seeking to sponsor a Baldwin Re Ltd. (Series 2023-1) cat bond, through which it aims to secure $100 million in multi-year collateralized reinsurance to cover losses from multi-peril events in north east US states.

Vermont Mutual Insurance is one of the oldest property and casualty insurers in the United States having been established in 1828.

The insurer sponsored its debut cat bond two years ago, securing $150 million in multi-peril reinsurance across a four year term with the Baldwin Re 2021-1 deal.

It’s second transaction is very similar and Bermuda based special purpose insurer Baldwin Re Ltd. will issue a single tranche of Series 2023-1 Class A notes, that will be sold to investors and the proceeds used to collateralize a reinsurance agreement covering the sponsor and its affiliates Northern Security Insurance Company, Inc. and Granite Insurance Company, we understand.

The initially $100 million of notes being offered will provide Vermont Mutual Insurance and subsidiaries with four years of catastrophe reinsurance to the end of June 2027, on an indemnity and per-occurrence basis.

The covered perils are very similar to the 2021 deal, being US Northeast, named storm, earthquake, severe weather, and fire. Missing though is the “other perils” category that had been a feature of the earlier Baldwin Re cat bond deal.

We’re told the covered area is the same, being Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island and also Vermont.

The currently $100 million of Class A notes Baldwin Re will issue have an attachment point at $450 million of losses, and their coverage would exhaust at $950 million, it’s said.

Which gives the notes an initial attachment probability of 1.783%, an initial base expected loss of 1.203% and they are being offered to investors with pricing guidance for a spread of between 4.5% and 5.25%, sources said.

At the mid-point of that guidance, the multiple-at-market for these cat bond notes would be roughly 4 times the expected loss.

For comparison, the 2021 cat bond, at issuance, offered a multiple-at-market of only 2.5 times, but it should be noted the exposure was lower at the time, with the expected loss just 0.91% even though the attachment point was the same.

You can read all about this new Baldwin Re Ltd. (Series 2023-1) catastrophe bond and every other cat bond deal in our extensive Artemis Deal Directory.