42% of Florida Citizens renewal is collateralized markets & ILS funds

A whopping 42% of the limit placed for Florida’s Citizens Property Insurance Corporation’s reinsurance renewal was sourced from collateralized markets and insurance-linked securities (ILS) fund managers, as third-party capital continued to grow its share of the shrinking program.

Florida Citizens purchased just slightly under $1.03 billion of reinsurance limit in its traditional reinsurance renewal recently, adding to the $300 million of multi-year coverage secured through its recently issued Everglades Re II Ltd. (Series 2017-1) catastrophe bond.

Florida Citizens has been utilising ILS fund capacity and collateralized reinsurance markets within its risk transfer programs for some years now, having been responsible for the largest catastrophe bond in the world with the $1.5 billion Everglades Re Ltd. (Series 2014-1), and with ILS fund manager participation in the overall program having steadily risen.

Access to traditional reinsurance and efficient risk transfer from the capital markets, through the catastrophe bonds and ILS fund capacity, has helped Florida Citizens in its mission to downsize the amount of risk it holds, something that is evident in the size of the insurers reinsurance program this year.

Florida Citizens has placed a $1.03 billion program, with participation from a range of traditional reinsurance companies, Lloyd’s of London syndicates and ILS fund backed collateralized vehicles.

Of the $1.03 billion program, almost $419 million or 40% of the limit placed is from a range of collateralized reinsurance vehicles operated by ILS fund managers. Another almost $12.8 million comes from another ILS fund manager via a fronting arrangement with a traditional reinsurer.

That makes a total of $431.4 million of the reinsurance limit sourced from directly collateralized markets and ILS fund managers, a very significant 42% of the total program for 2017. That’s up from around 24% collateralized and ILS market participation in the prior year.

Of the ILS market participants, Nephila Capital is by far the largest participant and backer of Florida Citizens reinsurance and risk transfer needs, with just over $238.4 million of limit through its Poseidon Re Ltd. collateralized reinsurer, $21.16 million using its Rubik Re vehicle, and another $26.4 million through frequent fronting partner Allianz Risk Transfer.

In total Nephila took a huge chunk accounting for $286 million, or roughly 28%, of the total reinsurance limit purchased by Florida Citizens at this renewal, which is more than double the ILS managers participation at the 2016 renewal.

Validus owned ILS investment manager AlphaCat Managers Ltd. is the next largest collateralized market, with $65.12 million placed using its AlphaCat Re Ltd. reinsurance vehicle.

Next is LGT Insurance-Linked Strategies, with $47.3 million of reinsurance limit placed using its Collateralised Re Ltd. vehicle.

Credit Suisse Insurance-Linked Strategies also participated, with $20.21 million of the limit sourced from its ILS fund strategies.

Finally, Pillar Capital Management also participated, with a $12.79 million of limit placed through a fronting arrangement with German reinsurer Hannover Re.

The ILS market and third-party capital market providers of risk capital have played a huge role in helping Florida Citizens downsize and reduce risk for local taxpayers. This assistance is not just through investments in the catastrophe bonds and participation in the reinsurance renewal, but also through the take-out and depopulation process, another area Nephila Capital plays a growing role.

Capital markets support has helped the Florida property insurance market become more sustainable, as efficient risk and reinsurance capital helped Citizens shift risk from its own portfolio, to investors, which ultimately lessens the potential for assessments on taxpayers and insurers in the state.

As we wrote earlier this week, the capital markets and ILS is also playing a role in helping the Florida Hurricane Catastrophe Fund (FHCF) with its reinsurance needs.

Just a few weeks until our ILS Asia 2017 conference, get your ticket now.