Everglades Re II Ltd. (Series 2015-1)
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Everglades Re II Ltd. (Series 2015-1) - At a glance:
- Issuer / SPV: Everglades Re II Ltd. (Series 2015-1)
- Cedent / Sponsor: Citizens Property Insurance
- Placement / structuring agent/s: Citigroup is sole structuring agent and bookrunner. BofA Merrill Lynch is joint bookrunner.
- Risk modelling / calculation agents etc: AIR Worldwide
- Risks / Perils covered: Florida named storms
- Size: $300m
- Trigger type: Indemnity
- Ratings: S&P: Class A - 'BB(sf)'
- Date of issue: May 2015
Everglades Re II Ltd. (Series 2015-1) - Full details
The new Everglades Re II 2015-1 cat bond, which is the fourth in the series, will provide Florida Citizens with a source of fully-collateralized reinsurance protection for Florida named storm risks (so covering tropical storms and hurricanes). It’s the first of the Everglades cat bonds to cover named storms instead of just Florida hurricane risks.
The protection from the $250m of Class A notes will be on an annual aggregate basis and using an indemnity trigger. It covers losses from both personal and commercial residential property exposures in the Florida Citizens coastal account over a three-year period.
The 2015-1 Class A notes will have an initial attachment point of $6.256 billion of losses to Florida Citizens, with an exhaustion point at $7.05 billion. That results in an initial attachment probability of 1.46%, an exhaustion probability of 1.19% and an expected loss of 1.31% on a base case (1.55% sensitivity case).
As is now common, the Everglades Re II 2015-1 cat bond features a variable reset which could allow the risk to be increased up to a maximum attachment probability of 1.75%, after the first risk period. The transactions also features a redemption clause, which would allow Citizens to redeem the notes after the second year it seems.
In terms of price guidance, we understand the notes are being offered to investors with a coupon range of 4% to 4.5%. At the base expected loss of 1.31% that would indicate a multiple of at least 3x, dropping to just under 2.6x at the sensitivity case.
The price guidance range has been expanded to allow a higher coupon, after investors pushed back on what they felt was too low a yield for the risks involved.
The new guidance range was set at 4% to 5.25%, so adding .75% to the top end of the initial 4% to 4.5% range.
At the mid-point of the new price guidance range, which would be 4.625%, the multiple at the base expected loss would be 3.5x and at the sensitivity case 3x.
At final pricing the cat bond upsized by 20% to reach $300m in size.
The single tranche of Everglades Re II cat bond notes were priced at 5.15%. With an expected loss of 1.31% at the base case and 1.55% on a sensitivity case basis, that will provide a multiple of 3.9x EL at the base case and 3.3x at the sensitivity case.
Update 24th March 2017:
Florida Citizens has elected to call the Everglades Re II cat bond early, a year in advance of its scheduled maturity. Citizens will pay no premium for redeeming the notes from investors.
The reason for the early redemption is two-fold. First, the Florida Citizens portfolio has changed and de-risked dramatically since the cat bond had been launched, making the coverage less well-matched with its needs. Second, the price environment is much improved and Citizens could likely achieve the same coverage at a significantly lower cost with a new issuance in 2017.
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