Pelican III Re Ltd. (Series 2015-1)

Pelican III Re Ltd. is offering a $100m tranche of notes to investors as Louisiana Citizens seeks the capital to fully collateralize reinsurance agreement between itself and the SPI which will cover named storm (so hurricane and tropical storm) risks in the State of Louisiana over a three-year term.

The named storm reinsurance protection afforded by the Pelican III Re 2015-1 cat bond will be on an indemnity trigger and per-occurrence basis and Artemis understands the transaction will feature a variable reset.

Sources said that the protection provided by the Pelican III Re notes will kick in at an attachment point of $175m and cover up to an exhaustion point at $319m, so a $144m layer of the insurers reinsurance programme.

That attachment point is slightly lower than the maturing Pelican Re 2012 deal, which attached at $200m of losses, so Louisiana Citizens has elected to move its cat bond cover down the tower slightly.

In terms of initial attachment probability the Pelican III Re deal is set at 4.44%, with an exhaustion probability of 2.35% and a base expected loss of 3.23% (rising to 3.51% on a sensitivity WSST case).

The attachment probability is slightly lower than the maturing bond, which was set at 4.74% with an expected loss of 3.25%, which likely reflects the changed risk profile of the insurer, as Louisiana Citizens has been working to depopulate some policies back to the private insurance market.

The $100m of notes are being offered to ILS investors with a coupon guidance range of 6.25% to 7%, we’re told, which would give the deal a multiple in the range of 1.9 times to 2.2 times the expected loss.

Comparing the risk return profile to the maturing Pelican Re 2012 cat bond, the maturing 2012 deal which had a very similar risk profile, as this latest Pelican III Re is a replacement for it, priced at what now seems a massive 13.75% so approximately double the yield.

Update 1:

Louisiana Citizens have been able to secure the catastrophe bond protection at a very low rate, with final pricing for Pelican III Re 2015-1 dropping below the low-end of guidance to 6%.

That’s a multiple of 1.86 times the base expected loss and 1.7 times the sensitivity case, which is low compared to many recent cat bonds, perhaps reflecting the lower risk of the Louisiana coastal area compared to Florida and other hurricane zones.