Citizens secures $950m of cat bond cover with Everglades Re 2021

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Florida’s Citizens Property Insurance Corporation has now secured its upsized $950 million target for its latest Everglades Re II Ltd. (Series 2021-1 & 2021-2) catastrophe bonds, making them the insurers second largest slice of reinsurance from the capital markets on record.

Florida Citizens logoThe not for profit property insurer for the state of Florida, Citizens Property Insurance Corporation has been accessing the insurance-linked securities (ILS) market to provide catastrophe reinsurance, using catastrophe bonds, since 2012.

Details of every Florida Citizens sponsored 144A cat bond can be found here.

Everglades Re cat bonds from Florida Citizens had shrunk in recent years, as declining insured values at-risk in its portfolio meant less reinsurance protection was required thanks to its depopulation program.

But, over the last couple of years, Florida Citizens portfolio of property insurance policies has dramatically increased again, leading the company to need additional reinsurance and once again to increase the amount of protection it looks for from its cat bonds.

As we wrote in March, Florida’s Citizens Property Insurance Corporation aims to secure at least a $2.6 billion reinsurance and risk transfer program in readiness for the 2021 hurricane season, with as much as $850 million of new catastrophe bonds expected to be a part of it.

Citizens duly returned to the catastrophe bond market in late April, with a target for a $500 million or greater dual-series issuance, this latest Everglades Re II Ltd. Series 2021-1 and Series 2021-2 deal.

As catastrophe bond investor demand is running very high at this time and ILS market conditions are delivering strong execution for cat bond sponsors in 2021, there was always a strong chance the deal could upsize.

That looked set to be the case a week ago, when we learned that Florida Citizens target for its latest Everglades Re cat bonds had increased to between $800 million and $950 million of coverage.

Now, we’re told that the upper target has been secured, with the notes successfully pricing at the low-end of guidance and Citizens set to benefit from $950 million of multi-year collateralized reinsurance with these issues.

So, the new catastrophe bond transaction will provide Florida Citizens with $950 million of fully-collateralized reinsurance protection from the capital markets, on an indemnity trigger and annual aggregate basis, against losses from Florida named storms and hurricanes over a three-year term to May 2024, with coverage included for both its Coastal Account and Personal Lines Account books of insurance business.

The Series 2021-1 Class A tranche of Coastal Account notes have an initial expected loss of 1.1% and were $175 million in size at launch. The target for this tranche then increased to $300 million to $350 million and we’re told has now settled at the upper-end of $350 million. These notes were first offered to investors with price guidance of 5.75% to 6.5% and at pricing the coupon was fixed at the low-end of 5.75%, we understand.

The Series 2021-1 tranche of Class B notes will also cover the same Coastal Account book, but are a little riskier with an initial expected loss of 1.67%. This tranche was also $175 million at launch and the target was lifted to between $225 million and $275 million. We’re told the upper-end was again achieved, at $275 million. The notes were first offered to cat bond investors with price guidance in a range from 6.75% to 7.5% and this was also fixed at the low-end of guidance at 6.75% at pricing.

The final originally $150 million Series 2021-2 Class A tranche of notes will cover some of the risks in Citizens Personal Lines Account and have an initial expected loss of 1.03%. The target for this tranche was increased to $275 million to $325 million and we’re told achieved the upper-end again, at $325 million. These notes were first marketed with coupon price guidance in a range from 5.75% to 6.5% and at pricing the coupon was fixed at the low-end of 5.75%, sources said.

So all three tranches have increased in size significantly, while pricing at the bottom end of spread guidance, a strong result for sponsor Florida Citizens.

At between $950 million this is one of the biggest catastrophe bond issues on record and Florida Citizens second largest so far, although still some way off Florida Citizens own record $1.5bn deal from 2014.

You can read all about Florida Citizens latest catastrophe bond, the $950 million  Everglades Re II Ltd. (Series 2021-1 & 2021-2) transaction, as well as every other cat bond transaction in our extensive Artemis Deal Directory.

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