Pelican IV Re cat bond to price at low end of reduced guidance

by Artemis on April 6, 2017

Louisiana Citizens Property Insurance Corporation’s latest catastrophe bond, the $100 million Pelican IV Re Ltd. (Series 2017-1) transaction, is set to achieve pricing at the bottom end of already reduced guidance, reflecting a 25% drop in the coupon during marketing.

The Pelican IV Re 2017 cat bond sees Louisiana Citizens looking for reinsurance protection on a more remote, higher layer of its tower than its three previous cat bond deals, but still the pricing level here is particularly low for the risk on offer, another reflection of the opportunity to secure cat bond backed reinsurance at very low pricing right now.

The Pelican Re IV 2017-1 cat bond notes were initially offered to ILS investors with coupon guidance of 2.75% to 3.25%, which with the initial expected loss set at 0.86% which was a relatively high multiple at market, as we wrote before.

The pricing then dropped and tightened down to 2.25% to 2.75%, which left the potential multiple more aligned with other recent cat bond deals. But now we’re told the price guidance has been fixed with a coupon at the bottom of that range, at 2.25%.

It’s an extremely low price for U.S. tropical storm and hurricane risk in the catastrophe bond market, being the lowest price on a larger tranche of notes and with only two tranches of cat bond risk exposed to pure U.S. wind having lower coupons, the very small Class A tranches of the two Trinity Re cat bonds from the late 1990’s (which priced at 1.75% and 1.86%).

However the multiple at around 2.6 times the initial expected loss is not actually that low compared to other recent cat bond deals at this expected loss level.

Louisiana Citizens has not upsized the deal though, we understand that it is still targeting the $100 million of collateralised reinsurance for the sponsor as the layer covered is just that size leaving no room for expansion.

The Pelican IV Re Ltd. (Series 2017-1) cat bond is set to close in the coming weeks, we’ll update you as it comes to market and you can read about this and every other catastrophe bond in the Artemis Deal Directory.

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