Everglades Re II cat bond could see relatively better pricing: Citizens

by Artemis on March 30, 2015

Florida’s Citizens Property Insurance Corporation hopes to see ‘relatively better pricing’ in its risk transfer programme for 2015, including in a new catastrophe bond expected to come to market via a new issuing vehicle, Everglades Re II Ltd.

In the coming weeks Florida Citizens is expected to establish a brand new special purpose insurance vehicle named Everglades Re II Ltd., in order to continue its use of the capital markets and insurance-linked securities (ILS) investors as a source of collateralized reinsurance protection for 2015.

For the 2014 hurricane season Florida Citizens had in place $3.269 billion of reinsurance and risk transfer, with $1.59 billion coming from traditional reinsurance markets and $1.75 billion from the capital markets thanks to its $1.5 billion Everglades Re Ltd. (Series 2014-1) and the $250m Everglades Re Ltd. (Series 2013-1).

For 2015 Citizens wants to increase the amount of risk transfer and reinsurance protection it has to $4.05 billion, to be sourced from both the traditional and alternative reinsurance (or ILS) markets.

$1.317 billion of reinsurance cover is expiring before the 2015 wind season and $1.95 billion will be carried over, consisting of the $1.75 billion of cat bonds and $202m of multi-year traditional reinsurance. All of this cover is on an aggregate basis, which is part of Citizens strategic push to become better protected.

That means Citizens will be looking for approximately $2.1 billion of additional risk transfer for the 2015 season. When putting this coverage in place it will follow its strategy of aiming to eliminate any assessment potential for a 1-in-100 year storm event, to protect its accumulated surplus, to use aggregate covers to protect against multiple storms, to protect commercial non-residential exposure, and to optimise use of traditional and capital markets while using multi-year covers to stagger its future renewals.

Citizens has already had some initial discussions with capital market investors and expects to see strong demand and relatively better pricing (compared to 2014) within its risk transfer programme for this year, comments made in a recent board meeting explain.

Jennifer Montero, Florida Citizens CFO, commented during the board meeting that on the traditional side of the renewal, some quotes have already been received from reinsurance market players and the figures seen so far are favourable in terms of pricing.

Citizens dedicated catastrophe bond strategy team met in late February to discuss structuring and risk transfer needs for 2015, Montero explained. For this year a new SPI will be formed, named Everglades Re II. SPI’s tend to last five years for use in catastrophe bond programmes and Everglades Re Ltd. was formed in April 2012, so it makes sense to launch an Everglades Re II Ltd. for the 2015 cat bond.

Montero said that Citizens would be meeting with potential investors in the week commencing April 20th, which suggests that an Everglades Re II 2015-1 cat bond offering will be launched just before that date.

“Current market conditions continue to be promising where the cost of risk transfer is low and demand is high,” Montero explained, referring to the Everglades Re II catastrophe bond issue.

The goal in the 2015 risk transfer programme is to focus on the coastal account, so Citizens most exposed policyholders, and to completely eliminate the need for assessments after a 1-in-100 year hurricane event.

Montero said that if Citizens succeeds in placing all of the reinsurance and catastrophe bond risk transfer that it wants to in 2015 then the goal of protecting itself up to the 1-in-100 year storm point will be reached.

With appetite for access to catastrophe insurance risks so high in both traditional reinsurance and capital markets right now, it seems likely Citizens will reach this goal and at relatively attractive pricing compared to a year ago.

We will update you as soon as any details of a new Florida Citizens catastrophe bond emerge, using the soon to be established Everglades Re II Ltd. special purpose insurer (SPI).

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