The latest catastrophe bond to be sponsored by non-profit state mandated insurer of last resort Louisiana Citizens Property Insurance Corporation has been successfully upsized 20%, with the Catahoula Re Pte. Ltd. (Series 2020-1) now a $60 million transaction.
At the same time the coupon pricing for the Catahoula Re cat bond has increased, eventually settling at the top-end of initial guidance, reflecting the increased spreads on offer to catastrophe bond investors at this time.
Louisiana Citizens returned to the insurance-linked securities (ILS) market in April, seeking a new source of fully collateralised reinsurance from the capital markets using a new issuance vehicle named Catahoula Re Pte. Ltd. that is registered in Singapore as a special purpose reinsurance vehicle (SPRV).
It’s the first time Louisiana Citizens has looked to Singapore and its ILS grant program, seeking to make its issuance more cost-effective it is assumed.
The new cat bond will secure Louisiana Citizens a source of reinsurance coverage against certain losses from Louisiana named storms (so tropical cyclones and hurricanes) as well as severe thunderstorms.
This new Catahoula Re cat bond will sit directly below the sponsors Pelican IV Re 2018 cat bond, so is slightly more risky than the last transaction from LA Citizens.
At launch, the transaction sought to sell a $50 million tranche of notes that Catahoula Re Pte. would offer to investors, with the resulting collateral used to underpin reinsurance agreements between the issuer and the sponsor.
But having received sufficient support from investors, LA Citizens has opted to upsize the deal by 20% we’re told, with the deal now set to provide $60 million of per-occurrence and indemnity trigger based reinsurance cover for named storm and severe thunderstorm risks across a three-year term.
The notes have an initial expected loss of 0.91% at the base case and were offered to cat bond investors with a coupon of 3% to 3.5%.
At pricing though, the coupon was fixed at the upper-end of the range at 3.5%, our sources said, as investors continued to demand higher returns from catastrophe bond investments in 2020.
It’s possible to compare this deal to the Pelican IV Re cat bond notes issued in 2018, which at issuance attached at $300 million of losses at issuance, with a 0.97% expected loss and coupon of 2.25%.
While the new Catahoula Re 2020-1 cat bond notes will attach at $260 million of losses, they have a lower expected loss and have priced some 55% higher than the 2018 deal, a clear demonstration of the increased cat bond returns now being demanded.
Issuance of the new $60 million Catahoula Re 2020-1 cat bond will be completed in a weeks time.