Louisiana Citizens Property Insurance Corporation is returning to the catastrophe bond market in 2017, with a $100 million Pelican IV Re Ltd. (Series 2017-1) transaction covering named storm risks across a three-year reinsurance term.
The residual market property insurer first visited the cat bond market back in 2012 with a $125 million Pelican Re Ltd. (Series 2012-1) deal, returning a year later with the $140 million Pelican Re Ltd. (Series 2013-1) and then another year later with the $100 million Pelican III Re Ltd. (Series 2015-1).
Louisiana Citizens fourth transaction sees it looking for reinsurance coverage on a more remote, higher layer of its tower than the previous deals, as it looks to tap the capital markets for cover that will attach at $350 million of Louisiana named storms indemnity losses.
Pelican IV Re is a newly established Bermuda special purpose insurance vehicle. For this deal, Pelican IV Re will seek to issue a single tranche of Series 2017-1 Class A notes, which will be sole to investors to collateralize a reinsurance agreement between it and the sponsor Louisiana Citizens.
The $100 million of notes will cover the sponsor against losses from Louisiana named storms (so tropical storms and hurricanes), on a per-occurrence basis and using an indemnity trigger structure.
The notes will attach at $350 million of losses to Louisiana Citizens and cover it up to $450 million, giving them an attachment probability of 1% and an expected loss of 0.86%.
The Pelican Re IV 2017-1 notes are being offered to ILS investors with coupon guidance of 2.75% to 3.25%, which as multiples go is relatively high, so again this cat bond could well price down during its marketing phase.
Louisiana Citizens is bringing the capital markets into its reinsurance program in an intelligent way, using it alongside traditional cover and spreading it along the program tower. It seems unlikely this cat bond will upsize, given the stated layer of protection it covers is the same as the initial size of the tranche of notes, but it is encouraging to see the insurer back and continuing to deepen its relationship with the ILS investor base.