Bayou Re Ltd. (Series 2025-1)

Louisiana Citizens Property Insurance Corporation, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, has returned to the catastrophe bond market to sponsor what will be its eleventh issuance.

As in recent years, Louisiana Citizens is targeting fully-collateralized, multi-year named storm reinsurance protection from the capital markets with this Bayou Re 2025-1 cat bond issuance.

This will be the third takedown of a catastrophe bond under the Bayou Re Ltd. special purpose insurer (SPI) in Bermuda, as Louisiana Citizens looks to further build-out its multi-year hurricane and named storm reinsurance protection with the support of global capital market investors.

Bayou Re Ltd. will offer and sell to investors a $200 million single Class A tranche of Series 2025-1 notes, with the proceeds used to collateralize a reinsurance agreement between the SPI issuer and Louisiana Citizens.

These Bayou Re 2025-1 cat bond notes will protect Louisiana Citizens with a source of reinsurance against named storm losses in the state, structured using an indemnity trigger and on a per-occurrence basis, across a three-year term, we are told.

The $200 million Class A tranche of notes will initially have an attachment point at $1.05 billion of losses to Louisiana Citizens, with an exhaustion point at $1.33 billion, leaving room for the issuance to upsize to as much as $280 million, it seems.

The Series 2025-1 Class A notes Bayou Re Ltd. is offering come with an initial attachment probability of 1.93%, an initial base expected loss of 1.69% and are being offered to cat bond funds and investors with spread price guidance in a range from 7.5% to 8%, sources explained.

In terms of recent historical storms, only hurricane Katrina would have triggered and also exhausted these notes, had they been in-force at the time, we are told. No other hurricanes in recent history would have resulted in LA Citizens losses reaching this cat bonds attachment level.

For comparison, the Class A notes from the Bayou Re 2024-1 issuance came with an initial expected loss of 1.14% and priced to pay investors a spread of 8.5%, so as you’d expect the multiple on offer in 2025 is considerably lower.

Update 1:

We understand that Louisiana Citizens has increased the target size for this cat bond by 40% to $280 million, which would be its largest ever cat bond.

At the same time, price guidance has been narrowed to an updated range of 7% to 7.5%.

Update 2:

Louisiana Citizens secured its 40% upsized target for $280 million of reinsurance from this Bayou Re 2025-1 catastrophe bond.

The notes were eventually priced to pay investors a spread of 7%, so the low-end of reduced guidance and roughly 10% below the initial mid-point.