Everglades Re II Ltd. (Series 2024-1)

Florida’s Citizens Property Insurance Corporation is back in the catastrophe bond market with another dual-series issuance of notes under its Everglades Re II Ltd. vehicle, seeking a significant initial target for $850 million of collateralized reinsurance to cover it against named storm and hurricane risks in the state.

Florida Citizens is bringing three tranches of three-year cat bond notes and three tranches of two-year notes to this offering, suggesting it will look to maximise investor appetite across the two Series, to secure as much capital markets reinsurance from the deal as it can.

All six tranches of notes being offered would provide the Floridian property insurer of last resort with annual aggregate named storm reinsurance for the state of Florida, on an indemnity trigger basis, we understand.

The only difference between the three tranches of notes within each of the two Series is the term of coverage, with the Series 2024-1 tranches of notes able to provide Citizens three years of Florida named storm reinsurance, while the Series 2024-2 tranches of notes would provide two years of protection to the residual market insurer.

The dual-series of notes are all being issued by Bermuda based Everglades Re II Ltd. and have significant room for upsizing, due to the way the deal is structured.

Here, we’ll detail the metrics for only the three tranches of Series 2024-1 notes, as the figures are understood to be the same across the Series 2024-2 tranches, with only the tenure different (Series 2024-1 being three-year term notes, Series 2024-2 being two year notes).

A $150 million Class A tranche of notes would attach their coverage at $13.309 billion of losses and exhaust at $15.309 billion, giving them an attachment probability of 1.34%, a base expected loss of 1.24% and these are being offered with price guidance in a range from 9.5% to 10.25%, we are told.

A $150 million Class B tranche of notes would attach their coverage at $11.309 billion of losses and exhaust at $13.309 billion, giving them an attachment probability of 1.74%, a base expected loss of 1.51% and these are being offered with price guidance in a range from 10.5% to 11.25%.

Finally, a $125 million Class C tranche of notes would attach their coverage at $9.809 billion of losses and exhaust at $11.309 billion, giving them an attachment probability of 2.06%, a base expected loss of 1.91% and these are being offered with price guidance in a range from 11.5% to 12.25%.

As said, the 2024-1 Class A, B and C notes will all have three-year terms, while 2024-2 Class A, B and C have the same risk metrics, attachment points and price guidance, but will only provide two-years of reinsurance protection.

Meaning that, across all six tranches on offer, $850 million of notes are initially available to investors, with ample room to upsize all if investors are receptive given the significant reinsurance purchases Citizens needs to make this year.

Update 1:

We are told that Florida Citizens has opted to only sponsor the Series 2024-1 three-year tranches of notes of this Everglades Re II catastrophe bond issuance. We are also told that the Series 2024-1 notes will upsize above the initial $850m target. We understand the new size target could be as much as $1.25 billion.

The Series 2024-2 notes that were initially offered have been withdrawn and won’t now be issued.

Update 2:

This issuance will now be between $950 million and $1.25 billion in size, we have learned.

Everglades Re II Ltd. will issue three tranches of Series 2024-1 notes, each to collateralize a three-year source of reinsurance.

What was a $150 million Class A tranche of notes with a base expected loss of 1.24% are now targeted at between $350 million and $450 million in size, we are told.

The Class A notes were initially offered with price guidance in a range from 9.5% to 10.25%, but we’re now told that has risen to updated guidance fixed at 10.5%.

What was a $150 million Class B tranche of notes with a base expected loss of 1.51% are now also targeted at between $350 million and $450 million in size, we understand.

The Class B notes were initially offered with price guidance in a range from 10.5% to 11.25%, but we’re now told have also seen their guidance rise and get fixed at 11.5%.

The final Class C tranche were initially targeted at $125 million in size with a base expected loss of 1.91% and are now targeting an increase to between $250 million and $350 million, sources told us.

The Class C notes were initially offered with price guidance in a range from 11.5% to 12.25%, but have also seen their price guidance rise and be fixed at 12.75%.

We are also told that an optional redemption premium has been included in the deal terms, which would enable Citizens to redeem some or all of the notes, should its total insured values (TIV) fall below pre-defined levels.

Update 3:

Florida Citizens eventually priced its latest Everglades Re II catastrophe bond to provide it $1.1 billion of reinsurance across the three-year term, so slightly below the upper-target level.

The Class A notes achieved the $450 million upper-target, priced at 10.5%.

The Class B notes were finalised at $425 million, so slightly below the upper-target, while they were priced at 11.5%.

The final Class C tranche were finalised to provide $225 million in cover, so below the updated size target range and priced at 12.75%.