Everglades Re II Ltd. (Series 2021-1 & 2021-2)

Florida’s Citizens Property Insurance Corporation is back in the catastrophe bond market with its latest transaction, which will see its Everglades Re II Ltd. special purpose insurer (SPI) looking to issue three tranches of named storm and hurricane risk-linked cat bond notes.

Sources told us that this dual-series issuance from Florida Citizens has begun with a $500 million target across three tranches of notes, two Series 2021-1 tranches to be issued to provide $350 million of reinsurance for the Coastal Account and one Series 2021-2 tranche to provide $150 million of reinsurance for the Personal Lines Account.

All three tranches and the full $500 million of notes will provide Florida Citizens with fully-collateralized reinsurance protection against losses from Florida named storms and hurricanes across a three-year term to May 2024.

Protection from each tranche of notes will be on an indemnity trigger and annual aggregate basis, we’re told.

A $175 million Series 2021-1 tranche of Class A notes will provide Citizens with reinsurance for its Coastal Account, so for subject business including both wind-only and multi-peril policies, across both personal and commercial residential classes of insurance business.

The Series 2021-1 Class A tranche of notes would attach at $2.906 billion of losses and cover a percentage of a wide layer in Citizens Coastal Account reinsurance tower up to $3.777 billion, we understand. That gives the notes an initial expected loss of 1.1% and the $175 million of notes are being offered to investors with price guidance of 5.75% to 6.5%, we understand.

An also $175 million Series 2021-1 tranche of Class B notes will also cover the same Coastal Account types of policies, but are a little riskier, attaching at $2.035 billion and covering a percentage of losses to $2.906 billion, so a layer beneath the A tranche.

The Series 2021-1 Class B notes will have an initial expected loss of 1.67% and are being offered to cat bond investors with price guidance in a range from 6.75% to 7.5%, we’re told.

Finally, a $150 million Series 2021-2 Class A tranche of notes will cover some of the risks in Citizens Personal Lines Account, where multi-peril homeowner policies are the focus of the subject business. These notes will attach at $2.412 billion of losses and cover a percentage of losses up to $3.585 billion, we understand.

The Series 2021-2 Class A notes will have an initial expected loss of 1.03% and are being marketed with coupon price guidance in a range from 5.75% to 6.5%, sources said.

One final point of note with this new cat bond issuance from Citizens, is that the deal will feature a early redemption option allowing the insurer to redeem the notes early should the total insured value (TIV) of its Coastal or Personal Lines Accounts drop significantly.

Update 1:

Sources told us that Florida Citizens is now looking to upsize this dual series catastrophe bond issuance to between $800 million and $950 million.

The Series 2021-1 Class A tranche of Coastal Account notes have an initial expected loss of 1.1% and were $175 million in size at launch. We’re now told the target for this tranche is $300 million to $350 million. These notes were first offered to investors with price guidance of 5.75% to 6.5%, but this has now fallen to the low-end at 5.75%, we’re told.

The Series 2021-1 tranche of Class B notes will also cover the same Coastal Account book, but are a little riskier with an initial expected loss of 1.67%. This tranche was also $175 million at launch, but the target has now been lifted to between $225 million and $275 million. The notes were first offered to cat bond investors with price guidance in a range from 6.75% to 7.5%, but this has now also fallen to the low-end of guidance at 6.75%.

The final originally $150 million Series 2021-2 Class A tranche of notes will cover some of the risks in Citizens Personal Lines Account and have an initial expected loss of 1.03%. The target for this tranche now stands at $275 million to $325 million. These notes were first marketed with coupon price guidance in a range from 5.75% to 6.5%, which has now also fallen to the low-end at 5.75%.

So all three tranches of cat bond notes to be issued by Everglades Re II Ltd. for Citizens are set to increase in size, while pricing looks likely to settle for all three at the bottom-end of guidance.

Update 2:

Florida Citizens secured its upsized target of $950 million of reinsurance from these new Everglades Re 2021 catastrophe bond issues.

The Series 2021-1 Class A tranche of Coastal Account notes settled at $350 million with pricing at the low-end of 5.75%.

The Series 2021-1 tranche of Class B of Coastal Account notes settled at $275 million with pricing at the low-end of guidance at 6.75%.

The final originally $150 million Series 2021-2 Class A tranche of Personal Lines Account notes also settled at the upsized target of $325 million, with pricing fixed at the low-end at 5.75%.