Florida’s Citizens Property Insurance Corporation is back with the expected Everglades Re II Ltd. (Series 2015-1) catastrophe bond in advance of the U.S. hurricane season, as the insurer seeks to once again increase its use of capital markets for risk transfer.
Florida Citizens made it clear in 2015 that another catastrophe bond would be on the cards, as long as market conditions and pricing were conducive. As Artemis wrote last month, a new special purpose insurance vehicle, Everglades Re II Ltd., was to be established in Bermuda for the purpose of issuing the 2015 cat bond.
Now Artemis understands that the deal has launched to the market, in the form of a single tranche of Series 2015-1 Class A notes with a preliminary size of $250m. Of course, as we’ve learned with previous Everglades cat bonds, the final transaction volume could be very different if Florida Citizens elects to increase the deal size.
The new Everglades Re II 2015-1 cat bond, which is the fourth in the series, will provide Florida Citizens with a source of fully-collateralized reinsurance protection for Florida named storm risks (so covering tropical storms and hurricanes). It’s the first of the Everglades cat bonds to cover named storms instead of just Florida hurricane risks.
The protection from the $250m of Class A notes will be on an annual aggregate basis and using an indemnity trigger. It covers losses from both personal and commercial residential property exposures in the Florida Citizens coastal account over a three-year period.
The 2015-1 Class A notes will have an initial attachment point of $6.256 billion of losses to Florida Citizens, with an exhaustion point at $7.05 billion. That results in an initial attachment probability of 1.46%, an exhaustion probability of 1.19% and an expected loss of 1.31% on a base case (1.55% sensitivity case).
As is now common, the Everglades Re II 2015-1 cat bond features a variable reset which could allow the risk to be increased up to a maximum attachment probability of 1.75%, after the first risk period. The transactions also features a redemption clause, which would allow Citizens to redeem the notes after the second year it seems.
In terms of price guidance, we understand the notes are being offered to investors with a coupon range of 4% to 4.5%. At the base expected loss of 1.31% that would indicate a multiple of at least 3x, dropping to just under 2.6x at the sensitivity case.
In 2015 Florida Citizens is looking for approximately $2.1 billion of new reinsurance or risk transfer, of which the Everglades Re II Ltd catastrophe bond is a part. It will be interesting to see whether this deal can upsize significantly, as other Citizens cat bonds have, or whether the traditional reinsurance component pricing is so competitive that the cat bond sees less growth than previous deals.
We’ll keep you updated as the Everglades Re II Ltd. (Series 2015-1) catastrophe bond comes to market and you can read all about this and Florida Citizens other cat bonds in the Artemis Deal Directory.