Bayou Re Ltd. (Series 2023-1)

Louisiana Citizens Property Insurance Corporation, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, is seeking $150 million or more in named storm reinsurance protection from the capital markets with this Bayou Re Ltd. Series 2023-1 catastrophe bond issuance.

For 2023, Louisiana Citizens has a new Bermuda based issuance vehicle, Bayou Re Ltd., that will target issuance of two tranches of catastrophe bond notes.

The notes will target $150 million of collateralized named storm reinsurance for the sponsor, through the sale of the notes to investors, with the proceeds used to underpin the reinsurance protection.

This first Bayou Re 2023-1 cat bond will protect Louisiana Citizens against named storms in its home state over a three year period, on an indemnity and per-occurrence basis, we understand.

A Class A tranche of notes are currently sized at $100 million and would attach at $800 million of losses to Louisiana Citizens, exhausting at $1.05 billion of losses, we’re told.

The Class A notes will have an initial attachment probability of 2.5%, an initial expected loss of 2.14% and are being offered with spread price guidance in a range from 13.25% to 14.25%.

A Class B tranche of notes are sized at $50 million and would attach lower down at $500 million of losses to Louisiana Citizens, exhausting at $800 million of losses, sources said

The Class B notes are therefore riskier and will have an initial attachment probability of 3.91%, an initial expected loss of 3.09% and are being offered with spread price guidance in a range from 18.5% to 19.5%, we are told.

Update 1:

We understand the target size for this Bayou Re 2023-1 catastrophe bond has been increased to as much as $220 million, while at the same time price guidance has been adjusted for each tranche of notes being issued, one upwards and one down.

The Class A tranche of notes now have a $120 million target, while their updated spread guidance is now between 12.75% and 13.25%, so it looks as though this lower-risk tranche of notes will price at the low-end of initial guidance or even below that.

The Class B tranche of notes are now targeted at between $60 million and $100 million, while their pricing has been fixed at the upper-end, of 19.5%.

Update 2:

The Bayou Re 2023-1 catastrophe bond eventually priced to provide Louisiana Citizens $195 million of reinsurance protection.

The Class A notes stayed at $120 million in size, while they were priced at the low-end of revised guidance at 12.75%.

The Class B notes were finalised at $75 million in size, while they were priced at the upper-end of guidance at 19.5%.