Heritage returns to cat bond market with $125m Citrus Re 2017-1

Heritage Property & Casualty Insurance Company is returning to the capital markets for its fifth Citrus Re named catastrophe bond issuance as it seeks to expand its collateralised reinsurance protection, with a $125 million sized Citrus Re Ltd. (Series 2017-1).

With its fifth Citrus Re catastrophe bond, we understand from sources that Heritage is looking for fully collateralized U.S. named storm reinsurance protection from ILS investors, initially covering its four main states of operation, Florida, Georgia, South and North Carolina.

The transaction is initially offering $125 million of rule 144A notes to investors in a single Class A tranche.

Heritage is seeking reinsurance coverage from the capital markets on a per-occurrence basis over a three-year risk period with this Citrus Re 2017-1 issuance, while losses to the investors in the notes will be tied to an indemnity trigger, so based on Heritage’s claims experience on subject personal and commercial residential business due to named storm losses in the covered area.

We are told that the Citrus Re 2017-1 Class A notes will have an attachment point at $40 million, covering $125 million of losses up to an exhaustion point at $165 million. That doesn’t leave room for upsizing, however Heritage has been seen to follow up very quickly with additional cat bond issues before if market conditions prove conducive.

The Class A notes have an attachment probability of 5.33% and an expected loss of 3.08%. The $125 million of Citrus Re 2017-1 notes are being offered to investors with coupon guidance in a range from 6.5% to 7.25% we’re told.

Aon Securities is acting as sole structuring agent and bookrunner for this Citrus Re 2017-1 catastrophe bond, which is a change as all previous Citrus Re deals have been brought to market by Willis Capital Markets & Advisory. AIR Worldwide is acting as risk modelling agent.

For Heritage this is the first time a catastrophe bond has covered the states of Georgia, South and North Carolina from launch. We speculated previously that it could add those states to an existing cat bond at reset, as the insurer has expanded its operations steadily.

This new Citrus Re 2017-1 cat bond also features a variable reset feature, which would allow Heritage to expand the coverage and even include another company as sponsor, which is useful for potential acquisitions, which given Heritage’s appetite for growth can never be ruled out.

We will update you as the Citrus Re Ltd. (Series 2017-1) comes to market. You can read all about this and every other catastrophe bond transaction in the Artemis Deal Directory.