Citrus Re Ltd. (Series 2014-2)

It seems that this successful cat bond issuance experience of Citrus Re 2014-1 has given Heritage Property & Casualty Insurance an appetite for the cat bond market and Artemis understands from sources that it has launched a second series from its Citrus Re special purpose vehicle which is being marketed rapidly in order to close it as soon as possible.

The Citrus Re 2014-2 issuance, a $50m single tranche of notes currently, is extending the cat bond protection up a layer in the insurers reinsurance programme, to the layer directly above the 2014-1 deal.

Citrus Re 2014-2 is again a pure Florida named storm cat bond again looking to secure Heritage three-year fully collateralized reinsurance cover, on an indemnity and per-occurrence basis.

The Citrus Re 2014-1 notes have an attachment point of $200m and an exhaustion point of $350m, but this new series of notes will cover the layer above, from an attachment of $350m up to an exhaustion point of $450m, sources explained.

With the deal currently offering $50m of notes, but this higher layer being $100m in size, it would be no surprise to see Heritage upsize it to cover the full layer, after which its cat bond capital markets sourced reinsurance protection would run from $200m to $450m of its tower.

As it covers a higher layer, the probability of attachment for this Citrus Re 2014-2 cat bond is lower than the first issuance. The 2014-2 notes have an attachment probability of 1.1%, an exhaustion probability of 0.9% and an expected loss of 1.04%.

As with the earlier series of notes, 2014-2 also has the ability to add extra U.S. states to the covered area at the annual reset, giving Heritage the chance to protect risks outside of Florida and perhaps also acting as a capital source to help it to expand into new areas if it chose. The notes also feature a variable reset feature allowing it to be reset within a range of expected losses.

The $50m (currently) Citrus Re 2014-2 cat bond notes are being offered with a coupon price guide range of 3.75% to 4%, Artemis understands. The 2014-1 series of notes eventually priced at a reduced 4.25%, so this new tranche looks to have been priced to sell and while the pricing may decline before it completes, we wouldn’t expect it to drop as far as the previous tranche.

Update 1:

The Citrus Re 2014-2 cat bond remained at $50m in size. The $100m layer of Heritage’s reinsurance program sees it sit alongside some private reinsurance cover so it does not cover a full 50% of those losses.

The pricing settled at the low end of the launch range at 3.75%.