The record-breaking Everglades Re Ltd. catastrophe bond which closed recently securing sponsor Florida’s Citizens Property Insurance a massive $750m of fully collateralized, two year hurricane reinsurance cover, has been the subject of considerable discussion in the press since we first revealed it had upsized. Information has now emerged on the amount of investors who have participated in the transaction, along with a brief statement from Citizens themselves.
Just 32 investors participated in the cat bond transaction, most of which are not participants in the traditional reinsurance market according to Citizens. It’s likely that all of the usual ILS fund investment managers will have been involved as well as a number of sophisticated institutional investors and pension funds who manage their own allocations to the cat bond space. If each investor had taken an equal share of the $750m deal then they would have acquired just shy of $23.5m of Florida hurricane risk each. However some investors would likely have taken on much more risk than others, so we hope they’ve kept diversification in mind and not overexposed themselves to the Florida coast as a cat bond this size offering such a good return will have been very attractive to investors.
This is the first time that Citizens has ventured into the cat bond market and the $750m Everglades Re equates to 75% of the total private reinsurance budget of $1 billion that the insurer had been looking for in 2012. Citizens will now look to acquire more cover than they budgeted for, thanks to the advantage that the cat bond has given them. Carlos Lacasa, chairman of Citizens said; “Our direction to management is to continue to secure a significant amount of additional risk transfer through the traditional reinsurance markets as well and I look forward to a total risk-transfer program in excess of the $1 billion budgeted for 2012.” Citizens is expected to finalise the rest of its reinsurance coverage in early May, before the U.S. hurricane season begins in June.
Given that the original Citizens budget would have allowed for $750m of traditional reinsurance, they could still opt to purchase that much and increase their overall private risk transfer to $1.5 billion. That would please lobbyists who are concerned at the lack of funding the insurer and expected shortfall the insurer would have after an active and damaging Florida hurricane season.
Citizens said that they welcome the diversity that the Everglades Re cat bond brings to their overall reinsurance program and the increase in capacity it will allow them to acquire.