LA Citizens achieved reinsurance savings with Pelican III Re cat bond

by Artemis on May 28, 2015

Louisiana Citizens Property Insurance achieved attractive savings at its reinsurance renewal thanks to strong investor support for its $100m Pelican III Re Ltd. (Series 2015-1), the insurers third catastrophe bond transaction.

The $100m Pelican III Re 2015-1 cat bond secured Louisiana Citizens a fully-collateralized source of per-occurrence reinsurance protection for named storm (so hurricane and tropical storm) risks in the State of Louisiana over a three-year term.

Delighted with the support received from investors, Steve Cottrell, Chief Financial Officer, Louisiana Citizens Property Insurance Corporation, commented; “Louisiana Citizens Property Insurance Corporation was very pleased with the investor demand for our catastrophe bond, Pelican III Re. Catastrophe bonds are an important part of our total reinsurance strategy.”

The new cat bond is a replacement for the matured Pelican Re Ltd. (Series 2012-1) transaction and comparing the two demonstrates just how much of a saving was achieved.

The Pelican Re III 2015-1 cat bond covers a very similar layer to the matured 2012 deal, perhaps also with better terms due to the inclusion of the latest structural features. However the 2015 cat bond priced at 6%, compared to the 13.75% coupon that the Pelican 2012 cat bond paid to investors.

That translates to a just over 56% reduction in price for the cat bond, compared to its maturing edition. This third visit to the cat bond market to augment its tropical cyclone reinsurance protection clearly demonstrated the steep reductions in price available in the cat bond market over just three years prior.

David Priebe, Vice Chairman of Guy Carpenter the sole structuring agent and bookrunner for the Pelican 2015 cat bond, said; “This transaction exemplifies the benefit of the convergence between the reinsurance and capital markets and demonstrates the value that Louisiana Citizens achieved in utilizing the catastrophe bond market to meet its risk transfer needs. GC Securities is honored to have assisted LA Citizens in the offering of the Series 2015-1 Notes.”

The real savings to Louisiana Citizens reinsurance program are likely much greater, although hard to price, given the 2015 Pelican cat bond features an updated structure to include the latest innovations available to cat bond issues.

Cory Anger, Global Head of ILS Structuring at GC Securities, commented; “We are honored to have brought LA Citizens back to the catastrophe bond market and delivered further reinsurance program savings for LA Citizens and its constituents. In addition to complementing LA Citizens’ traditional reinsurance program and continuing to diversify its risk transfer capacity sources, the Series 2015-1 bonds (as well as the Pelican III Re shelf program) provide the latest structural features to LA Citizens.”

The 2015 cat bond includes a broader definition of Named Storms, so ensuring that any tropical, named, hurricane or storm that was previously named, will qualify. It also features the addition of a liquidity feature allowing the next 30 days’ worth of expected claims payments to be advanced, as well as a more flexible annual reset.

Investor demand was strong for the cat bond, likely contributing to the steep decline in pricing and the fact that Pelican III Re 2015-1 is one of the few cat bonds that has priced below the initial guidance level so far this year.

With many other cat bonds seeing pricing settle nearer the top of guidance, Louisiana Citizens is one of the few sponsors to see this happen in 2015. With an expectation that insurance-linked securities (ILS) and catastrophe bond pricing has now found, or is very near to, its pricing floor, this might be as good in terms of price as it gets.

Chi Hum, Global Head of ILS Distribution at GC Securities, added; “The capital markets support for LA Citizens was broad and a strong endorsement for this well-structured, residual market capacity program. The market rewarded the efforts by LA Citizens and the broker team to find the optimal mix of capital markets and traditional reinsurance.

“LA Citizens should take this as a signal of the continuing future support that the capital markets can and will provide going forward. GC Securities thanks LA Citizens and the capital markets investors for the successful execution of the series 2015 Pelican III Re bond issuance.”

You can read all about the Pelican III Re Ltd. (Series 2015-1) catastrophe bond in the Artemis Deal Directory.

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