Swiss Re Insurance-Linked Fund Management

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Citrus Re 2017-1 cat bond pricing falls to bottom of reduced range


The pricing guidance for insurer Heritage’s recently launched $125 million Citrus Re Ltd. (Series 2017-1) catastrophe bond has fallen again, now being fixed at the bottom end of the lowered coupon guidance range.

This cat bond looks set to demonstrate the appetite of insurance-linked securities (ILS) investors, with the spread guidance range having been lowered earlier this week to below the launch offering, and now pricing having been fixed to the bottom of the reduced range.

The $125 million of Citrus Re 2017-1 cat bond notes, which will provide sponsor Heritage Property & Casualty Insurance Company with collateralised reinsurance protection against U.S. named storm risks, began its trip to market in February with price guidance in a range from 6.5% to 7.25%.

The Class A notes that Citrus Re will issue, which offer Heritage capital market backed reinsurance coverage on a per-occurrence and indemnity trigger basis, have a modelled attachment probability of 5.33% and an expected loss of 3.08%.

In our update yesterday (Thursday) we explained that the spread guidance for the Citrus Re 2017-1 notes had been lowered to below the launch guidance, with the notes then offered to catastrophe bond investors with price guidance of 6% to 6.5%.

Now, in a clear sign of the burgeoning demand for cat bond investments, we’re told that the price guidance has been updated again, now at the bottom of the already reduced range, offering investors a coupon of 6%.

Based on the expected loss of 3.08%, the $125 million Citrus Re 2017-1 Class A notes will pay investors a multiple of 1.95 times the EL.

Looking at our data tracking multiples at market for catastrophe bond issues, that 1.95 times expected loss is below the average seen in 2016, and for the issuances we have data for so far in 2017.

As we wrote yesterday, there is a clear opportunity right now for sponsoring insurance, reinsurance and also corporate or sovereign sponsors, to take advantage of cat bond and ILS investor appetite to lock-in attractively priced coverage through the catastrophe bond market.

It will be interesting to see whether Heritage itself returns with another issuance, given just how attractive the pricing looks on this cat bond issue.

We understand that the Citrus Re Ltd. (Series 2017-1) issuance will be priced early next week, although we’re told any change from this newly reduced and fixed guidance is unlikely with orders from investors said to be due today. Completion is expected by the middle of March. We will keep you updated.

You can read all about this and every other catastrophe bond transaction in the Artemis Deal Directory.

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