Lightning Re Ltd. (Series 2023-1)

This new Lightning Re Ltd. (Series 2023-1) catastrophe bond will be the tenth full 144a cat bond issuance from Florida’s Citizens Property Insurance Corporation that we have listed in our Deal Directory.

It is the first not to be named Everglades Re and also the first to feature an industry loss trigger to provide the coverage, as Florida Citizens has preferred indemnity reinsurance coverage in the past.

But with Florida Citizens exposure having expanded rapidly in the last year or so, an industry loss index can provide a valuable alternative source of protection, that can closely approximate the residual market insurers’ exposure to any major Florida named storm or hurricane event.

Florida Citizens has established a new Bermuda based vehicle named Lightning Re Ltd. that will be licensed as a special purpose insurer (SPI) for the issuance of catastrophe bonds.

For its first transaction, Lightning Re Ltd. will issue a single $200 million or larger tranche of Series 2023-1 Class A notes that will be sold to investors and the proceeds used to collateralize a reinsurance agreement between the vehicle and Citizens Property Insurance Corporation.

The $200 million or more in capital markets backed reinsurance protection will be afforded on a PCS industry loss index and annual aggregate trigger basis, we’re told.

We understand the index will only be based on personal lines losses from named storms in the state of Florida and that the Lightning Re 2023-1 cat bond will provide Citizens with protection across a three-year term to the end of March 2026.

Sources said that the index attachment point will be $51.5 billion of aggregate losses, while the cat bond would exhaust its coverage at an index value of $66 billion, with a $2 billion per-event franchise deductible will be in effect.

As a result, the $200 million of Series 2023-1 Class A notes that Lightning Re Ltd. will issue come with an initial attachment probability of 2.18% and an initial expected loss of 1.8%

We understand the notes are being offered to cat bond funds and investors with price guidance in a range from 11.5% to 12.5%.

As this is the first industry loss trigger cat bond from Florida Citizens and there aren’t any other Florida named storm only industry loss cat bonds to compare it to, this being the first such deal in 144a cat bond format, it’s hard to see how the pricing might look against previous deals.

However, if we compare it to a Class A tranche of notes from Citizens Everglades Re II 2020-2 deal, that had a 1.93% expected loss, they priced at 6.25%, which makes this look like comparably much harder pricing, as you might expect.

Update 1:

Florida Citizens more than doubled the target size for this new cat bond, with between $400 million and $500 million of reinsurance now sought from the issuance.

At the same time the price guidance has been reduced, to between 11% and 11.5%, indicating strong investor demand and strong execution.

Update 2:

Florida Citizens secured the upsized $500m target for reinsurance from its first industry loss cat bond, while the risk interest spread settled at the low-end of reduced guidance, to pay investors an 11% coupon.