Gallatin Point seeks $150m Marlon Florida wind cat bond to protect investment portfolio

An interesting new catastrophe bond transaction has come to light, as we’ve learned private investment firm Gallatin Point Capital LLC is to become the beneficiary of a cat bond to transfer some Florida hurricane risk from its investment portfolio, with a $150 million target for the Marlon Ltd. (Series 2024-1) issuance.

Gallatin Point is a private equity and financial services focused investment firm that has made numerous investments into insurance and reinsurance companies, re/insurance distribution plays such as MGA/MGU’s, reinsurance sidecars and insurtechs.

With its first cat bond, Gallatin Point Capital LLC is looking to both build relationships with insurance-linked securities (ILS) investors and to secure a capital markets backed source of reinsurance protection to offset some of the Florida named storm and hurricane exposure in its portfolio of re/insurance sector investments.

It’s an interesting use-case for the cat bond, but also one that makes perfect sense, as an investor such as Gallatin Point carries Florida wind exposure through its investments into the insurance and reinsurance sector, so a cat bond can provide a way to transfer some of that exposure, effectively hedging the risk and providing capital should major catastrophes occur.

Which is a little similar in motivation to the way investors such as Blackstone and Brookfield have used the catastrophe bond in recent years, to carve catastrophe risk out of their real estate investment portfolios.

Sources have told us that Gallatin Point has established a Bermuda company named Marlon Ltd. to issue its catastrophe bonds.

Marlon Ltd. will issue two tranches of Series 2024-1 notes, both of which will be sold to investors and the proceeds will collateralize reinsurance agreements to provide Florida named storm reinsurance back to a Gallatin Point investment affiliate named GPC Partners Investments Corp (Coppola) LP.

Two tranches of notes are being issued, that will together provide a targeted $150 million of protection to Gallatin Point across a three year term to the start of June 2027, we understand.

A $100 million Class A tranche of notes will provide per-occurrence coverage, on an industry loss index trigger basis.

The Class A notes would attach at 3.8bn index points and exhaust at 4.4bn points, giving them an initial attachment probability of 0.75%, an initial expected loss of 0.65% and they are being offered to investors with price guidance of 5.25% to 6%, we are told.

A $50 million Class B tranche of notes are set to provide both per-occurrence and also multi-event capped aggregate cover as well, in an interesting structure.

The Class B notes will therefore have two index attachment points, the per-occurrence coverage being the exact same layer as the Class A notes, but the aggregate cover will have an event deductible of 30m index points, but with each capped at 435m points per event, attaching at 870m points and exhausting at 1.3bn, we understand.

As a result, the Class B notes have an initial attachment probability of 1.43%, an initial expected loss of 0.92% and are being offered to investors with price guidance in a range from 9.75 to 10.5%.

We are also told that there are optional redemptions after the first two risk periods, with an 8.5% premium payable at July 2025 and a 5.5% premium at July 2026, which would give Gallatin Point an option to cancel the coverage, while compensating investors better than many other cat bonds we’ve seen with similar terms.

It’s encouraging to see an investor like Gallatin Point seeing the value in utilising the catastrophe bond as a way to carve out risk and also seeing the importance of building relationships with ILS investors, as a source of capital it can use to match with some of the risk its investment portfolios carry.

You can read all about this Marlon Ltd. (Series 2024-1) catastrophe bond and more than 1,000 other cat bond transactions in the extensive Artemis Deal Directory.