We’ve learned that State Farm has been back in the catastrophe bond market in recent weeks and has now secured what is a record amount of reinsurance limit from the capital markets in a single visit in cat bond form, as it priced $1.55 billion of multi-peril protection via sponsorship of four Merna Re II Ltd. (Series 2025) cat bonds.
In this case, State Farm, the US primary insurance giant, has opted to sponsor four separate Series 2025 cat bonds at once, each with a single tranche of notes, we are told. In the past State Farm has done this to keep different peril coverages in distinct series of notes, instead of using note classes to do the same.
But all four series have come to market together we are told, in a single sponsorship, so at $1.55 billion in size this now qualifies as the largest cat bond issuance ever, making it the second time this year that record has fallen after Florida Citizens slightly smaller $1.525 billion deal settled earlier this month.
Our market sources have confirmed that State Farm has been active in the catastrophe bond market for a number of weeks, helped by its broker Aon and other service providers.
The goal was to secure a meaningful new source of multi-year, multi-peril and fully-collateralized reinsurance to protect the insurer across a range of its peak exposures.
We understand that following State Farm’s significant losses from the California wildfires, the company had been motivated to look at how to secure its large reinsurance tower in the most efficient way possible, so it’s encouraging to learn the catastrophe bond market is playing a meaningful role.
Details are limited with these new Merna Re II 2025 catastrophe bonds from State Farm, as is typically the case given the insurer opts to market its cat bond deals on a closed group basis to just selected investors, so they are not as broadly offered as most cat bond deals would be.
State Farm has persisted with this strategy for sponsoring semi-private, or club based issuances in the catastrophe bond market in 2025.
As we’ve explained before, this has benefited the insurer as it looked to develop deeper relationships with key insurance-linked securities (ILS) investor and cat bond fund markets, while also gathering important pricing indications from the capital markets that can help to inform its broader reinsurance purchases.
State Farm’s Merna Re, or Merna Reinsurance, catastrophe bonds have all tended to be Rule 144A issues but placed under a closed subscription group for a number of years now.
Find details about all of State Farm’s catastrophe bonds in the Artemis Deal Directory.
Last year, State Farm sponsored its second largest cat bond yet, with a $1 billion Merna Re II Ltd. (Series 2024) issuance that saw three specific series issued, each containing a single tranche of notes.
Now, the insurer has broken its own record and the cat bond market record for the biggest single sponsorship of an issuance ever.
For 2025, State Farm has again used its Merna Re II Ltd. special purpose insurer based in Bermuda for this catastrophe bond sponsorship.
But this time four series of notes have been issued and sold to investors, we understand, together securing the $1.55 billion of fully-collateralized reinsurance limit for State Farm.
Merna Re II Ltd. will issue the four series and tranches of notes today as the deal settles, we understand, with those notes having been sold to cat bond investors and the proceeds used to collateralize reinsurance agreements that will protect State Farm.
In total, the new Merna Re II 2025-1 cat bond will provide State Farm with a $1.55 billion source of indemnity reinsurance protection over a term running to the end of June 2028 and maturity due July 7th 2028, we understand.
This record visit to the catastrophe bond market is broken down by four series of notes, as follows:
- Series 2025-1 Class A – $200 million.
- Series 2025-2 Class A – $300 million.
- Series 2025-3 Class A – $500 million.
- Series 2025-4 Class A – $550 million.
At this stage, with information limited, we do not yet know whether all four series of cat bond notes are providing per-occurrence protection for State Farm, or whether any will provide annual aggregate protection to the insurer.
Last year’s Series 2024 cat bonds saw one series offering aggregate protection.
We are informed that the perils differ across each of the for series and tranches of notes, with some regional differences and exclusions of states as well, but that all four tranches will provide indemnity reinsurance protection, which is typical of State Farm’s use of catastrophe bonds.
We can’t be 100% certain of these peril details, but have learned that across the four tranches there will be elements of reinsurance coverage for losses from named storms, earthquakes, severe and convective weather including hail, tornado, as well as winter storm risks. We’ll likely be able to source more peril information in time and will update our entry in the Deal Directory for this cat bond as we can.
We have also learned from sources that the notes were priced recently and settlement is due today. The risk interest spread to be paid for each of the four notes offered will be:
- Series 2025-1 Class A – 7.75%
- Series 2025-2 Class A – 8.75%
- Series 2025-3 Class A – 7%
- Series 2025-4 Class A – 7.75%
As is typical with all of State Farm’s catastrophe bonds under the Merna Reinsurance series of structures in recent years, we understand that Aon Securities has structured the deal and acted as bookrunner.
With $500 million of cat bond coverage from issuances in 2022 set to mature in early July for State Farm, the company has added $650 million in additional reinsurance with this latest visit to the catastrophe bond market.
On that basis, with $1.95 billion of Merna Re cat bonds outstanding now, with this new settlement today that figure will jump significantly to $3.5 billion, placing State Farm at the top of our catastrophe bond sponsor leaderboard for a few weeks, until those maturities roll off risk.
Finally, it’s worth recalling our story from last week about two new SPI’s registered in Bermuda named Merna Re Companywide Ltd. and Merna Re Enterprise Ltd.
With those also presumed to be vehicle for State Farm given the names, we have yet to understand what reinsurance arrangements may utilise them. So there is a chance there is more to come in the insurer’s continuing use of alternative forms of capital to support its reinsurance needs.
We’ve added this new $1.55 billion Merna Re II Ltd. (Series 2025) catastrophe bond to the Artemis Deal Directory, where you can read about and analyse details of almost every cat bond ever issued.
