Louisiana Citizens will seek to replace Pelican Re cat bond at renewal

by Artemis on January 13, 2015

Louisiana Citizens, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, will seek to replace its Pelican Re Ltd. (Series 2012-1) catastrophe bond at its next reinsurance renewal.

Louisiana Citizens Property Insurance Corporation has now sponsored two cat bonds, the 2012 deal in April of that year and a follow-up Pelican Re Ltd. Series 2013-1 in May 2013. The Pelican Re 2012-1 cat bond matures this April and demonstrating that cat bonds are now an important part of its overall reinsurance program the insurer will approach its renewal with the intention to renew the cat bond.

At Louisiana Citizens board meeting last week a proposal was presented for the insurers upcoming reinsurance renewal. The board approved that the existing coverage be almost replicated, but with the understanding that the insurer will ultimately benefit from greater protection as it has been depopulating policies as well.

At the renewal, the insurers team will seek to purchase reinsurance coverage up to $650m, which would effectively result in greater protection after Louisiana Citizens depopulated 10% of its policy count in December 2014.

The Pelican 2012-1 cat bond, which provides $125m of per-occurrence protection on an indemnity basis, for losses above $175m (the attachment point), will be replaced if the insurer can achieve the terms it desires. It expects this cat bond renewal to be in the $100m to $125m range in size.

Pricing will likely be a key factor for Louisiana Citizens and the insurer could potentially upsize the cat bond if the market is particularly receptive and the cat bond coverage comes in at a lower cost than traditional reinsurance.

At the renewal Louisiana Citizens will also try to eliminate some small co-participations that exist alongside its cat bonds in the current reinsurance structure. The retention level of $50m is not expected to change.

This is the target for Louisiana Citizens as it approaches its reinsurance renewal in 2015. With rates having declined significantly for catastrophe bond coverage, since the Pelican Re 2012-1 deal was issued, it could find a significant saving at this renewal. That may lead it to increase the size of its cat bond, or it may prefer to remain more broadly diversified across capital sources.

The other traditional reinsurance layers in the program will likely see fierce competition for signings from both traditional reinsurers and collateralized markets or ILS funds. Again, this could result in a good saving for the insurer at its 2015 renewal.

None of this strategy is set in stone, it will all depend on how the market responds to Louisiana Citizens goals. However with the cat bond market being so attractive to sponsors right now the renewal of the maturing Pelican Re cat bond seems a strong possibility.

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