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Citrus Re cat bond losses clearer, as Heritage lays out recoveries


Catastrophe bond investors are facing over $104 million of losses from Citrus Re bond issues sponsored by Florida focused property and casualty insurer Heritage Insurance Holdings, Inc., after the company made clear it intends to proceed with recoveries under three separate issuances following the impacts of hurricane Irma.

The $104 million of reinsurance recoveries that Heritage expects to claim are from one tranche of the insurers Citrus Re Ltd. (Series 2015-1) deal, one tranche of the Citrus Re Ltd. (Series 2016-1) cat bond, and the insurers privately placed and single tranche Citrus Re Ltd. (Series 2017-2) issuance.

The $30 million Citrus Re 2015-1 Class C tranche of notes is currently estimated to face at least a $20 million loss, although secondary pricing seems to imply that investors may expect a higher reinsurance recovery to be claimed, as pricing sheets have this tranche marked down for bids as low as 10 in some cases.

Investors in the $100 million Citrus Re 2016-1 Class E-50 tranche of cat bond notes are also set to be hit, with Heritage estimating a recovery of just over $49 million from this cat bond layer, we’re told. This tranche of notes is marked down by secondary brokers for bids ranging from 50 to as low as 25, reflecting the expected erosion of this tranche and that this could continue to erode.

Finally, the $35 million Citrus Re 2017-2 tranche of notes is expected to be a total loss, according to an event notification Heritage sent to investors in this cat bond. Secondary market brokers have this tranche marked down for bids from 10 to as low as 2.5, reflecting the expectation that this bond will be a total loss.

As we explained last November, Heritage Insurance Holdings, Inc. had revealed a $388 million gross loss from the impact of hurricane Irma, which as we said at the time was likely to eat into the bottom of its catastrophe bond protection, triggering at least two tranches of the Citrus Re cat bonds, the Class E-50 tranche of the 2016-1 issue and the Class C tranche of the 2015-1 cat bond.

We now see that the Citrus Re 2017-2 notes are actually the riskiest layer, attaching the lowest down, of the three cat bond issues, so no surprise they are the first to be fully eroded by Heritage’s hurricane Irma losses, while the losses eat upwards into the other two cat bond layers.

All three of the cat bonds provided Heritage with per-occurrence reinsurance protection on an indemnity trigger basis, with expected losses of between 5.72% up to 6.6% for the riskiest private 2017-2 layer.

The loss notification from Heritage follows one from Nationwide Mutual, which expects to make around a $121 million recovery from its Caelus Re cat bonds.

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