Farmers Insurance Exchange successfully renews USD 500 million surplus note facility providing an option to access capital after major cat event
17 February 2015, New York
Farmers Insurance Exchange ("Farmers") has successfully closed a USD 500 million contingent surplus loan note facility. This is the third time Farmers has put a facility in place which complements the capital structure of Farmers with bank and non-bank lenders participating in the transaction.
Commerzbank AG, RBS Securities Inc. and Swiss Re acted as joint bookrunners with active syndication roles on this transaction.
The overall structure of the facility, initially developed in 2007 and renewed in 2012, was further optimised for the most recent renewal. This capital management tool provides Farmers the option to quickly access capital when Farmers and its customers need it most. In addition, the structure preserves the long-term capital strength of Farmers by obtaining regulatory capital relief. Farmers now has the ability to issue 5-year surplus loan notes at pre-agreed interest levels during a two-year commitment period (followed by three annual extensions), in the event that loss claims from predefined catastrophe events reach a specific level.
"This facility would bring capital relief to Farmers in the remote event losses from a significant natural catastrophe stretches our traditional risk transfer structures. The fact that we are able to provide this relief in a unique structure which is substantially less costly than the traditional alternatives is a good deal for both Farmers and our customers," said Ron Myhan, Chief Financial Officer of Farmers. "We appreciate the multinational support we have received from the participants in this facility. The best deals are always those where both sides win, and we believe this facility is truly one of those deals."
Richard Furk, Client Executive, Commerzbank commented: “We were delighted to work again with Farmers on this unusual form of capital instrument, bringing together bank and non-bank investors to maximise the interaction between their capital requirements and risk protection.”
"Despite the improvements in the credit markets since 2012, syndicating such a facility is always an interesting challenge due to its various non-standard features such as the contingent nature and the embedded catastrophe trigger which requires lenders not only to assess the credit profile but also consider the impact of natural catastrophe events," said Philipp Kusche, Director, Insurance-Linked Securities at Swiss Re. "Aligning the embedded catastrophe trigger within the facility more closely with Farmers' traditional reinsurance coverage allowed us to make the transaction more efficient for Farmers, while reducing the maturity and commitment period compared to the 2012 transaction made it more appealing for lenders."
Gianfranco Lot, Managing Director and Client Executive at Swiss Re added: "The excellent reputation of Farmers and use of capital markets and reinsurance technology allowed the company to obtain an efficiently priced transaction supported by a broad panel of lenders."
Farmers Insurance Exchange is a part of the Farmers Insurance Group of Companies®, a leading U.S. insurer group of automobiles, homes and small businesses and a provider of a wide range of other insurance and financial services products. Farmers Insurance is proud to serve more than 10 million households with more than 19 million individual policies across all 50 states through the efforts of 50,000 exclusive and independent agents and nearly 22,000 employees. For more information about Farmers Insurance, visit its website at www.farmers.com or at www.Facebook.com/FarmersInsurance.
Commerzbank is a leading international commercial bank with branches and offices in more than 50 countries. The core markets of Commerzbank are Germany and Poland. With the business areas Private Customers, Mittelstandsbank, Corporates & Markets and Central & Eastern Europe, its private customers and corporate clients, as well as institutional investors, profit from a comprehensive portfolio of banking and capital market services. Commerzbank finances more than 30 per cent of Germany’s foreign trade and is the unchallenged leader in financing for SMEs. With its subsidiaries comdirect and Poland’s mBank it owns two of the world’s most innovative online banks. With approximately 1,200 branches Commerzbank has one of the densest branch networks among German private banks. In total, Commerzbank boasts approximately 15 million private customers, as well as 1 million business and corporate clients. The Bank, which was founded in 1870, is represented at all the world’s major stock exchanges. In 2013, it generated gross revenues of more than EUR 9 billion with an average of approximately 54,000 employees.
About The Royal Bank of Scotland
The Royal Bank of Scotland (RBS) is a UK-based banking and financial services company. Headquartered in Edinburgh, RBS provides a wide range of products and services to personal, commercial and large corporates, and institutional customers through its two main subsidiaries, The Royal Bank of Scotland and NatWest, as well as through a number of other well-known brands including Citizens, Ulster Bank and Coutts.
About Swiss Re
The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing direct and working through brokers, its global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. From standard products to tailor-made coverage across all lines of business, Swiss Re deploys its capital strength, expertise and innovation power to enable the risk-taking upon which enterprise and progress in society depend. Founded in Zurich, Switzerland, in 1863, Swiss Re serves clients through a network of about 70 offices globally and is rated "AA-" by Standard & Poor's, "Aa3" by Moody's and "A+" by A.M. Best. Registered shares in the Swiss Re Group holding company, Swiss Re Ltd, are listed in accordance with the Main Standard on the SIX Swiss Exchange and trade under the symbol SREN. For more information about Swiss Re Group, please visit: www.swissre.com or follow us on Twitter @SwissRe.
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