Pelican IV Re Ltd. (Series 2021-1) – Full details:
Louisiana Citizens Property Insurance Corporation, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, has returned to the catastrophe bond market for what will be the residual market insurers seventh transaction.
For 2021, Louisiana Citizens has returned to Bermuda as the domicile for this issuance and its Pelican Re IV Ltd. special purpose insurer, having switched to Singapore for a Catahoula Re Pte. Ltd. cat bond deal last year.
For this latest cat bond from Louisiana Citizens, its special purpose insurer (SPI) named Pelican IV Re Ltd. will issue two tranches of notes that will be sold to investors and the proceeds from the sale used to fully-collateralize reinsurance agreements between the SPI and sponsor Louisiana Citizens.
The current proposed issuance size is $125 million, we’re told, split across two tranches of notes, one of which will provide per-occurrence reinsurance protection and the other annual aggregate coverage, both on an indemnity trigger basis.
This is the first catastrophe bond where Louisiana Citizens has sought out annual aggregate reinsurance protection, reflecting a new approach to utilising the capital markets for both peak loss protection on an occurrence basis, as well as frequency reinsurance cover on an aggregate basis.
The $125 million of protection across the two tranches of notes will provide Louisiana Citizens with both occurrence and aggregate reinsurance protection against losses from named storms and severe thunderstorms affecting the state of Louisiana.
The reinsurance protection will run across three annual risk periods, over a three-year term.
Pelican IV Re Ltd. will look to issue a $75 million tranche of Series 2021-1 Class A notes, which will provide per-occurrence protection, attaching at $245 million of losses and exhausting at $345 million, we’re told.
The Class A notes will have an initial expected loss of 0.63% and are being offered to cat bond investors with price guidance in a range from 2.75% to 3.25%, we understand.
These notes will sit above last year’s Catahoula Re cat bond in the reinsurance tower.
Pelican IV Re Ltd. will also look to issue a $50 million tranche of Series 2021-1 Class B notes, which will provide the annual aggregate protection, attaching above $70 million and covering losses to $120 million, with a $1 million franchise deductible in place.
The Class B notes will have an initial expected loss of 0.44%, showing they are relatively remote risk for an aggregate arrangement, and are being offered to cat bond investors with coupon price guidance in a range from 5.5% to 6.5%, we’re told.
Louisiana Citizens did not upsize its latest cat bond, with the issuance remaining at $125 million. However, the pricing declined significantly, as the insurer experienced strong execution of this catastrophe bond.
For the $75 million tranche of Series 2021-1 Class A notes pricing now been fixed at just 2.25%, which is 25% down on the initial mid-point.
For the $50 million tranche of Series 2021-1 Class B notes, pricing has now been fixed at 5.25%, which represents a 12.5% decline in spread from the initial guidance mid-point.
Update – November 2021:
The $75 million Class A tranche of notes issued by Pelican Re in this Series 2022-1 catastrophe bond is expected to be a total loss following hurricane Ida, as Louisiana Citizens anticipates making a full reinsurance recovery from it.
Update – May 2022:
The full recovery has yet to be made, but Louisiana Citizens has confirmed it is expected and the market still has the Class A notes marked down for a total loss.
Update – August 2022:
We’ve learned that the $50 million Class B tranche of notes from this Pelican IV Re 2021 cat bond deal have now been subject to an event notice, with a full recovery expected.
The notes have been marked down to zero in broker secondary market cat bond pricing sheets and it seems Louisiana Citizens hurricane Ida losses have crept higher to erode this layer of protection as well.