The $250m Everglades Re Ltd. (Series 2013-1) catastrophe bond, sponsored by Florida’s Citizens Property Insurance Corporation in March 2014, has had its rating upgraded as it has now passed its final reset and there are no more chances to adjust the risk-level.
The Everglades Re 2013-1 cat bond was an early adopter of the variable reset mechanism, with the flexibility to allow Florida Citizens to adjust the attachment probability, from its launch position of 2.91% to anywhere in the range of 2.75% to 3%.
As with all variable reset mechanisms, the coupon would be adjusted accordingly to compensate investors for the changed risk profile.
Of course any change in risk profile could also affect the rating and Standard & Poor’s rated the deal with the potential for the base case attachment probability to reach as high as 3% factored into its ‘B(sf)’ rating.
Now, the $250m of Everglades Re 2013-1 notes have had their final reset on the 1st June, with the transaction maturing in March 2016. So the notes now won’t ever have their attachment probability set to the highest level in the range at 3% which S&P has deemed deserves an upgrade.
S&P explains that the initial rating natural catastrophe (nat-cat) risk factor is based on the maximum probability of attachment permitted at a reset. After the most recent reset the attachment probability is set at 2.76% base and 3.14% for the WSST case.
After applying an adjustment to the WSST results, S&P found that the updated nat-cat risk factor for the Everglades Re 2013-1 cat bond notes is ‘b+’, so hence the upgrade to a ‘B+(sf)’ rating.
At the same time, S&P has affirmed the ‘B(sf)’ rating on the $1.5 billion of notes issued in the Everglades Re Ltd. (Series 2014-1) cat bond transaction. These notes currently have an attachment probability of 2.87%, with a WSST case of 3.31%.
The Everglades Re 2014-1 cat bond reaches its final reset next year and if the notes probability of attachment remains at similar levels then S&P says it could upgrade those notes as well.
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