Will Armor Re usher in a raft of new cat bonds?

American Coastal Insurance is the latest first-time sponsor to issue a cat bond into the market through its Bermuda SPI, Armor Re.

The deal is expected to provide the insurance company with around $200 million of fully collateralised reinsurance for a one-year period—a deal somewhat shorter than the traditional three to four years that are a feature of most cat bonds—and will provide coverage against Florida wind risk. It seems likely its short duration represents a toe dipped in the water by the insurer as it looks to explore ILS as a complement to its traditional reinsurance portfolio.

Attractive rates for issuers of cat bonds are evidently helping to drive interest in the market and it seems likely that others may follow in American Coastal’s footsteps. Insurers have traditionally opted for lengthier terms on their bond deals in order to amortise cost across multiple years, but it seems that the recent decline in pricing may have served to lower entry hurdles. As a result, insurers may consider shorter duration bond deals, particularly if they feel the pricing is attractive.