Citrus Re 2022-1 cat bond from Heritage sees pricing rise

The new Citrus Re Ltd. (Series 2022-1) catastrophe bond transaction sponsored by Florida headquartered but nationally expansive property and casualty insurer Heritage Insurance Holdings, Inc. has seen its price guidance raised to above the initial range, Artemis can report.

It’s the latest sign that catastrophe bond funds and investors are demanding a minimum level of return for certain risks and perils, in particular peak US named storm and hurricane exposure.

Heritage returned to the catastrophe bond market for the first time since 2017 around the middle of March, with the Citrus Re 2022-1 cat bond seeking $100 million or more of north-east US named storm reinsurance protection for the carriers acquired Narrangasett Bay insurance portfolio.

Heritage acquired Narragansett Bay Insurance Company (NBIC) back in 2017 and the company is named as a cedent for this new catastrophe bond, alongside Heritage’s P&C insurance entity and its Hawaii based insurer Zephyr.

However, the Citrus Re Series 2022-1 catastrophe bond initially provides its reinsurance against north-east US named storm risks across the states of Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Rhode Island and Virginia, which are the locations where insurer Narragansett Bay operates.

The cat bond can be reset to include other states, but these exclude the peak southern hurricane exposed states of Florida, Alabama, Louisiana, Texas and Mississippi.

The targeted $100 million or more of protection is designed to cover Heritage’s losses from named storms across those named north-east US states, on a per-occurrence and indemnity trigger basis, across a term that runs to June 2025, so covering three full US hurricane seasons.

The Citrus Re Series 2022-1 Class A notes attach at $390 million of losses and cover a share up to an exhaustion point of $760 million, giving them an initial attachment probability of 1.95% and an initial expected loss of 1.57%.

The $100 million Series 2022-1 Class A notes being issued by Citrus Re Ltd. were at first offered to investors with coupon price guidance in a range from 4.25% to 5%.

Sources have now told us that the issuance remains $100 million in size, but that the pricing has now risen.

We understand the coupon pricing has now been fixed at 5.1%, so above the top-end of the initial guidance range.

Heritage has benefited heavily from the reinsurance its cat bonds provided in the past (some of which is detailed here), so it’s possible investors are seeking a slightly higher coupon as a result.

But it is clear from this and recent cat bond pricing, that cat bond investors have strong opinions on where returns need to be for peak peril reinsurance protection.

You can read all about this Citrus Re Ltd. (Series 2022-1)  catastrophe bond and every other cat bond issued in our extensive Artemis Deal Directory.