Andover Companies gets debut cat bond at upsized $175m with 19% price drop

The Andover Companies, a large mutual insurance group in the Northeast US, has now priced its debut Locke Tavern Re Ltd. (Series 2023-1) catastrophe bond issuance at the top-end of the target size range of $175 million, while also securing below guidance pricing for the coverage.

As a first time sponsor entry to the catastrophe bond market, the Andover Companies timing has been perfectly aligned with the slight softening now being seen, as cat bond market activity picks up.

As a result, the mutual insurance group will be delighted with the reception it has received from the cat bond investor community and the strong execution its first Locke Tavern Re cat bond issuance has achieved.

When it launched the cat bond in late February, the insurance group was aiming to secure $125 million of collateralized and multi-year reinsurance from this Locke Tavern Re cat bond.

Then, we reported that the target size for the Locke Tavern Re cat bond had been raised to between $125 million and $175 million of reinsurance for the sponsor, while at the same time the price guidance was lowered.

In our most recent update, we had learned that the targeted issuance size was narrowed to between $150 million and $175 million of reinsurance, while the price guidance for the Locke Tavern Re cat bond was lowered even further.

Now, we’ve been told by sources that the Andover Companies has successfully priced its first catastrophe bond to provide it the top-end target of $175 million of collateralized multi-peril US northeast catastrophe reinsurance on an indemnity and per-occurrence basis, over a three-year term.

At the same time, we understand the $175 million of notes have been priced with a spread at the bottom of the twice reduced guidance range.

The Locke Tavern Re Ltd. Series 2023-1 Class A cat bond notes have an initial base expected loss of 0.919% and were first offered to cat bond funds and investors with spread guidance in a range from 5.5% to 6.25%, which was first reduced to between 5% and 5.5%, and then again lowered to between 4.75% and 5%.

The notes have now been priced at 4.75%, we understand, which is around a 19% decline from the initial mid-point of pricing.

Which is another relatively significant decline in pricing, while this new cat bond was marketing, aligned with other recent deals and indicating the strong execution in the cat bond market, likely backed up by availability of capital rising in the space and investor appetite.

It’s still a multiple-at-market of more than 5 times the initial base expected loss though, which does align with other deals this year.

But, as we keep saying, there are strong indications cat bond pricing is easing back from its peaks earlier this year and the question now is how far can that be pushed by issuers and arrangers, or will funds and investors hold a line on expected returns.

You can read all about this new Locke Tavern Re Ltd. (Series 2023-1) catastrophe bond, as well as details on over 900 other cat bond transactions in the extensive Artemis Deal Directory.