Citrus Re Ltd. (Series 2014-1)

Citrus Re Ltd., a Bermuda domiciled special purpose insurer, is issuing a single Series 2014-1 tranche of catastrophe bond notes on behalf of Heritage Property and Casualty Insurance Co. The single tranche of notes are being marketed with a preliminary size of $100m and the proceeds of their sale will collateralize a reinsurance contract to protect Heritage against named storm risks.

The Citrus Re cat bond transaction will provide Heritage with a three-year, fully-collateralized source of reinsurance against named storms (so tropical storms and hurricanes) initially in Florida but with the ability to expand the coverage to include more hurricane exposed U.S. states after the annual reset, Artemis understands.

Heritage is a relatively new insurance company which was established to takeout policies from Florida’s Citizens Property Insurance Corp. as part of the efforts to lower the risks of the states insurer of last resort. So Heritage may seek to expand outside of Florida in years to come, hence the Citrus Re cat bond will allow it to add in more U.S. states under the coverage in years to come if required.

But for launch the Citrus Re cat bond will be the first pure Florida wind cat bond to come to market in 2014.

The Citrus Re cat bond notes provide protection to Heritage using an indemnity trigger which will be calculated on a per-occurrence basis. The notes have an attachment point of $200m and an exhaustion point of $350m, which perhaps suggests that the size of this deal may grow from the initial $100m to cover the full $150m layer.

The initial probability of attachment for the Citrus Re cat bond notes is 1.66%, the initial exhaustion probability is 1.1% and the initial expected loss is set at 1.28%.

Artemis understands that the $100m of Series 2014-1 notes being marketed under the Citrus Re Ltd. catastrophe bond are currently being offered with price guidance of 4.75% to 5.5% above the yield of the collateral investments.

Update 1:

The Citrus Re catastrophe bond grew in size to $150m while marketing.

At the same time the price guidance was lowered to below the original range and narrowed so that the Citrus Re notes were offered at an interest spread range of 4.25% to 4.75%.

Update 2:

At final pricing the Citrus Re cat bond priced at the bottom of that reduced range, offering investors an interest coupon of 4.25%. This represents a drop in pricing of over 17%, if you take the mid-point of the originally marketed range or as much as 23% from the top of that initial range.