Citrus Re cat bond launched for Florida takeout insurer Heritage

by Artemis on March 31, 2014

A new catastrophe bond transaction has launched today. Citrus Re Ltd. (Series 2014-1) is being issued on behalf of Florida Citizens takeout insurer and first time cat bond sponsor Heritage Property and Casualty Insurance Co.

Sources told Artemis that Citrus Re Ltd., a Bermuda domiciled special purpose insurer, is set to issue a single Series 2014-1 tranche of catastrophe bond notes on behalf of Heritage Property and Casualty Insurance Co. The single tranche of notes are being marketed with a preliminary size of $100m, the sale of which is designed to collateralize a reinsurance contract to protect Heritage against named storm risks.

The Citrus Re cat bond transaction will provide Heritage with a three-year, fully-collateralized source of reinsurance against named storms (so tropical storms and hurricanes) initially in Florida but with the ability to expand the coverage to include more hurricane exposed U.S. states after the annual reset, Artemis understands.

Heritage is a relatively new insurance company which was established to takeout policies from Florida’s Citizens Property Insurance Corp. as part of the efforts to lower the risks of the states insurer of last resort. So Heritage may seek to expand outside of Florida in years to come, hence the Citrus Re cat bond will allow it to add in more U.S. states under the coverage in years to come if required.

But for launch the Citrus Re cat bond will be the first pure Florida wind cat bond to come to market in 2014, so it will be interesting to watch pricing and investor appetite for this deal as it may indicate which way pricing is heading at the key mid-year U.S. catastrophe reinsurance renewals.

The Citrus Re cat bond notes provide protection to Heritage using an indemnity trigger which will be calculated on a per-occurrence basis. The notes have an attachment point of $200m and an exhaustion point of $350m, which perhaps suggests that the size of this deal may grow from the initial $100m to cover the full $150m layer.

The initial probability of attachment for the Citrus Re cat bond notes is 1.66%, the initial exhaustion probability is 1.1% and the initial expected loss is set at 1.28%.

Artemis understands that the $100m of Series 2014-1 notes being marketed under the Citrus Re Ltd. catastrophe bond are currently being offered with price guidance of 4.75% to 5.5% above the yield of the collateral investments.

Willis Capital Markets & Advisory are said to be the sole structuring agent and sole bookrunner for the Citrus Re cat bond. AIR Worldwide are providing risk modelling services.

That is all the information we have on Citrus Re Ltd. for the moment. It’s interesting to see a Citizens takeout insurer coming to market with a cat bond as there are others which may choose to follow suit. As Citizens depopulation continues there is more risk in the hands of private insurers which may choose to look to the catastrophe bond market as part of their reinsurance programs.

We will update you as the Citrus Re Ltd. (Series 2014-1) catastrophe bond comes to market. Details of the transaction have been added to the Artemis Deal Directory.

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