Heritage’s Citrus Re 2014-2 cat bond prices at low end

The second catastrophe bond sponsored by Florida Citizens takeout insurer Heritage Property and Casualty Insurance, Citrus Re Ltd. (Series 2014-2), has been priced at the low-end of guidance as the insurer maximised its use of the ILS market in 2014.

Heritage’s first cat bond, the Citrus Re Ltd. (Series 2014-1) issuance, completed and listed on the Bermuda Stock Exchange just this week, having upsized to $150m and then priced at the low-end of a reduced coupon range. Just before that deal closed the insurer launched a second takedown from the Citrus Re program, seeking to add another $50m of cover through Citrus Re 2014-2.

The $50m Citrus Re 2014-2 issuance extends Heritage’s cat bond protection up a layer in the insurers reinsurance programme, to the layer directly above the 2014-1 deal. The terms are identical except for the layer it covers, so the 214-2 deal is clearly a case of an insurer seeking to maximise its use of the investor demand for its first cat bond deal.

The $150m Citrus Re 2014-1 deal triggers at $200m of losses to Heritage and exhausts at $350m. The 2014-2 issue attaches at the $350m level and covers a percentage of losses up to an exhaustion point at $450m. We understand that Citrus Re 2014-2 remained at $50m in size and the $100m layer it provides cover at also contains some private reinsurance coverage.

The Citrus Re 2014-2 cat bond launched with price guidance of 3.75% to 4%. It is understood that at final pricing the deal completed with a coupon of 3.75%.

We understand that Citrus Re 2014-2 comes into force today at which point Heritage Property and Casualty Insurance will have $200m of reinsurance protection sourced through its Citrus Re cat bonds.

Interestingly the insurer is also seeking to hold an initial public offering to raise up to $100m from investors. As a newly formed insurer it has aggressively taken on policies through the depopulation of Florida Citizens and is clearly getting its finances in order for its next phase of growth.

Perhaps more interesting is the fact that Heritage has also stopped underwriting new homeowners policies in some of the most hurricane exposed Florida counties in advance of this years wind season. A number of the depopulation insurers have done this in recent weeks, with some Florida papers citing the conditions of their reinsurance coverage.

It stands to reason that reinsurers may have laid down conditions for the exposures they are willing to support and warned some of the startup and takeout insurers in Florida to put a lid on their peak exposures if they wanted to continue to have the best-priced support of the reinsurance market.

Details of the Citrus Re Ltd. (Series 2014-2) as well as the Citrus Re Ltd. (Series 2014-1) catastrophe bond transaction can be found in the Artemis Deal Directory.

Q1 2014 Catastrophe Bond & ILS Market Report – A Record Quarter

Don’t forget to download your copy of our Q1 2014 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the first-quarter of 2014, looking at the new risk capital issued and the composition of the transactions completed during Q1 2014. Download your copy here.