State Farm’s Merna Bond Keeps Indemnity, Starts Small

A successor catastrophe bond being issued by State Farm Fire & Casualty will retain an indemnity trigger but is being marketed at less than a quarter the size of its predecessor.

Merna Re II was issued a preliminary BB+ credit rating by Standard & Poor’s at a initial amount of $250 million, according to an S&P presale report.

Published reports said that State Farm was hoping to upsize the deal to as high as $700 million on completion.

The original Merna Re catastrophe bond was issued in 2007 and totaled $1.2 billion.

The new bond will use an indemnity quake trigger with and will be modeled by Risk Management Solutions using its North America Earthquake Model Version 9.0.

The covered territory for the bond will be surrounding the New Madrid Seismic Zone, including states like Alabama, Kentucky, Mississippi and Missouri.

Merna Re II will cover losses in this territory that result from earthquakes, regardless of whether the earthquake epicenter occurs in the covered territory, according to the S&P report.

Collateral for the bond will be held in Treasury money market funds and will be registered in Bermuda.

According to the report, Aon Benifield is acting as book runner and Bank of New York Mellon as trustee.

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