Florida’s Citizens Property Insurance Corporation is back in the catastrophe bond market with a $500 million or greater dual-series Everglades Re II Ltd. (Series 2021-1 & 2021-2) transaction, from which it is seeking reinsurance protection for both its Coastal and Personal Lines account books.
Florida Citizens attempted the same last year, but ended up pulling the Coastal Account linked notes from the offering, citing irrational pricing in the catastrophe bond market that made it less conducive to continue with that issuance.
In the end, in 2020, Florida Citizens secured just a $110 million Everglades Re II Ltd. (Series 2020-2) cat bond, that provided reinsurance protection to its Personal Lines Account, the first time it had ever purchased capital markets protection with a cat bond for that book of insured business.
This year, Citizens has growing reinsurance requirements, thanks to the fact issues in the Florida property insurance market have been driving policies back to the insurer and growing its insured values significantly, which as we explained in March means that it could look for as much as $850 million of cat bond protection, if market conditions and pricing are conducive enough.
Sources told us that this dual-series issuance from Florida Citizens has begun with a $500 million target across three tranches of notes to be issued by its Everglades Re II Ltd. special purpose insurer (SPI), two Series 2021-1 tranches to be issued to provide $350 million of reinsurance for the Coastal Account and one Series 2021-2 tranche to provide $150 million of reinsurance for the Personal Lines Account.
All three tranches and the full $500 million of notes will provide Florida Citizens with fully-collateralized reinsurance protection against losses from Florida named storms and hurricanes across a three-year term to May 2024.
Protection from each tranche of notes will be on an indemnity trigger and annual aggregate basis, we’re told.
A $175 million Series 2021-1 tranche of Class A notes will provide Citizens with reinsurance for its Coastal Account, so for subject business including both wind-only and multi-peril policies, across both personal and commercial residential classes of insurance business.
The Series 2021-1 Class A tranche of notes would attach at $2.906 billion of losses and cover a percentage of a wide layer in Citizens Coastal Account reinsurance tower up to $3.777 billion, we understand. That gives the notes an initial expected loss of 1.1% and the $175 million of notes are being offered to investors with price guidance of 5.75% to 6.5%, we understand.
An also $175 million Series 2021-1 tranche of Class B notes will also cover the same Coastal Account types of policies, but are a little riskier, attaching at $2.035 billion and covering a percentage of losses to $2.906 billion, so a layer beneath the A tranche.
The Series 2021-1 Class B notes will have an initial expected loss of 1.67% and are being offered to cat bond investors with price guidance in a range from 6.75% to 7.5%, we’re told.
Finally, a $150 million Series 2021-2 Class A tranche of notes will cover some of the risks in Citizens Personal Lines Account, where multi-peril homeowner policies are the focus of the subject business. These notes will attach at $2.412 billion of losses and cover a percentage of losses up to $3.585 billion, we understand.
The Series 2021-2 Class A notes will have an initial expected loss of 1.03% and are being marketed with coupon price guidance in a range from 5.75% to 6.5%, sources said.
One final point of note with this new cat bond issuance from Citizens, is that the deal will feature a early redemption option allowing the insurer to redeem the notes early should the total insured value (TIV) of its Coastal or Personal Lines Accounts drop significantly.
Given where the Florida market currently appears to be headed, that does seem unlikely at this stage without significant depopulation of policies from Citizens occurring.
It’s going to be interesting to see how these new cat bond notes from Citizens are received and whether current catastrophe bond market keen pricing conditions also support Florida related risks, as strongly as they have supported some other recent deals.
If the cat bond market’s pricing is deemed attractive, there is every chance Florida Citizens could look to upsize this transaction, perhaps significantly.
We’ll update you as Citizens latest catastrophe bond comes to market and you can read all about this Everglades Re II Ltd. (Series 2021-1 & 2021-2) transaction in our extensive Artemis Deal Directory.