Citrus Re Ltd. (Series 2023-1)

Heritage Insurance Holdings, Inc. has returned to the catastrophe bond market seeking $180 million or more in named storm reinsurance protection with this Citrus Re Ltd. (Series 2023-1) issuance.

This new Citrus Re 2023-1 catastrophe bond will be the eighth issuance under the Citrus name that Heritage has sponsored and we have listed in our extensive Deal Directory.

This new cat bond from Heritage sees the company seeking protection for its own book, as well as that of subsidiaries Narragansett Bay Insurance Company (NBIC) and its Hawaii based insurer Zephyr.

Citrus Re Ltd., a Bermuda based special purpose vehicle, will issue two tranches of notes, that will be sold to investors and the proceeds used to collateralize reinsurance agreements for the cedents benefit.

The Citrus Re 2023-1 cat bond notes will provide Heritage and its subsidiaries with US named storm reinsurance protection, on an indemnity trigger and per-occurrence basis, across a three-year term to June 2026, we understand.

An $80 million Class A tranche of notes come with an attachment probability of 2.05%, a base expected loss of 1.66% and are being offered to investors with spread price guidance in a range from 6.75% to 7.75%.

A larger $100 million Class B tranche come with an attachment probability of 2.62%, a base expected loss of 2.54% and are being offered to investors with spread price guidance in a range from 9% to 10%, we understand.

Both layers of reinsurance coverage would attach at $390 million of losses, we’re also told, but the Class A notes will cover a percentage of a layer to $760 million, while the Class B notes will cover a percentage of a thinner layer to exhaustion at $505 million.

From the information we have from sources, it’s not immediately clear why the attachment probability differs, but this is potentially due to differences in the way reinsurance inures to each tranche.

As we understand it, initially both classes of notes will cover losses for Heritage in Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, North Carolina, Penn, Rhode Island, South Carolina, Virginia, but the Class B layer also cover Heritage for losses in Hawaii.

Update 1:

We’re now told that Heritage has upsized its target for this new cat bond to provide between $215 million and as much as $235 million of named storm reinsurance protection for the carrier.

The Class A tranche of notes are now targeted at between $100 million and $120 million.

With a base expected loss of 1.66%, the Class A notes were at first offered to investors with spread price guidance in a range from 6.75% to 7.75%, but this has now been fixed at the low-end of 6.75%, we understand.

The Class B tranche of notes are now targeted at $115 million in size, we’re told.

With a base expected loss of 2.54%, the Class B tranche of notes were first offered to investors with spread price guidance in a range from 9% to 10%, but this has now also been fixed at the low-end of 9%.

Update 2:

Heritage Insurance Holdings secured this new Citrus Re 2023-1 catastrophe bond at the upsized target to provide it $235 million of US named storm reinsurance protection.

The Class A notes settled at $120 million in size, with a spread of 6.75%.

The Class B notes settled at $115 million in size, with a spread of 9%.