Florida Citizens tests investor appetite for new catastrophe bond

by Artemis on March 20, 2014

Florida’s Citizens Property Insurance is actively talking to insurance-linked securities (ILS) and capital markets investors as it tests their appetite for another catastrophe bond to replace its maturing Everglades Re deal, Artemis understands.

According to sources in the capital markets Artemis has spoken with and judging from recent internal meetings, Florida Citizens has been speaking with investors in the ILS space as well as with other fixed income investors about a potential new cat bond. Citizens is actively gauging investor appetite as well as potential pricing for a new cat bond to replace its maturing deal.

Citizens record $750m Everglades Re Ltd. (Series 2012-1) deal, the largest single tranche of catastrophe bond notes issued in cat bond market history, is due to mature on the 30th April 2014. The maturation of Everglades Re leaves a big hole in Citizens risk transfer program which it is keen to fill before this years hurricane season.

Citizens is not just keen to replace this $750m of private market reinsurance, it also wants to grow its private risk transfer once again this year, with the ultimate goal being a reduction in the potential for assessments to be required on Florida residents after a major storm or hurricane.

At a recent Florida Citizens board meeting on the 12th March, President Barry Gilway said that lowering assessment potential is the main driver for risk transfer and buying private reinsurance at Citizens.

Currently Citizens is reinsured, thanks to both traditional reinsurance cover and non-traditional from its catastrophe bonds, at the 1 in 60 year level for its coastal exposures and at the 1 in 90 year level for its personal lines account. So it has not yet reached the level that a private insurer in Florida would reinsure at yeat, which would be at the 1 in 100 year event level, but hopes this years renewal will help it get closer to that goal.

Citizens has an objective to further increase its private market reinsurance and risk transfer before the start of the 2014 hurricane season, explained Gilway, adding that current pricing trends in reinsurance and capital markets will allow Citizens to accomplish it in a very cost-effective risk transfer this year.

At a recent Finance committee meeting at Citizens, Jennifer Montero the organisations Chief Financial Officer, said that Citizens is looking into leveraging the historically lower pricing that is available in the current market environment.

Montero explained that both the traditional reinsurance and ILS market have grown and that Citizens is being told by market participants that there is additional capacity available for its risk transfer plans in 2014.

Following this Montero said at Citizens recent board meeting that her team is still meeting with investors and have talked with most of the reinsurers about this years renewal. Montero said that she expects to have a proposal for the board to consider in April.

Citizens is looking at all the available options in the current reinsurance market, explained Montero, including aggregate, per-occurrence, multiple-year and single year options. Montero reiterated Gilway’s thoughts that Citizens is looking for the best possible deal it can get to reduce the potential for assessments to be required.

Artemis understands that ILS investors would be keen to support a re-issue of this $750m of risk (or more) back into the capital markets through a new catastrophe bond and Citizens would be keen to take advantage of this appetite if price indications are attractive.

However there is no guarantee that the whole $750m layer will be replaced in a new cat bond as Artemis also understands that reinsurers have expressed their willingness to improve pricing and terms to attract more risk back into the traditional market.

That said, given the amount of risk transfer Florida Citizens seems to be looking for in advance of the 2014 U.S. wind season, which is expected to be well over $1 billion in total, at least some of this is likely to come to market as a new Citizens sponsored catastrophe bond in the coming weeks. Citizens will be keen to maintain the diversification of risk capital that its cat bonds have given it.

How large the next Citizens sponsored cat bond will be is uncertain at this stage. It could be $750m again, or even larger, if the capital markets can best support the organisations requirement of lowering the potential for assessments. However if traditional reinsurers and collateralized reinsurers are willing to compete hard on price and terms then this year it may be smaller.

We’ll keep you updated as and when we hear anymore on Florida Citizens reinsurance and catastrophe bond ambitions in 2014.

Read other recent articles on Florida Citizens and the Florida market’s impact on reinsurance and ILS:

Florida Hurricane Cat Fund $1.5 billion reinsurance plans stalled.

Depopulation of Citizens continues, commercial policies could be next.

Florida bill could see $3Bn of risk move to private reinsurance market.

New Florida reinsurance demand could generate $300m of premium.

Florida Clearinghouse to increase demand for reinsurance: Fitch.

Florida Cat Fund looks to cat bonds & collateralized reinsurance.

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