An optional termination notice was issued by the Everglades Re II Ltd. (Series 2015-1) catastrophe bond vehicle to its investors this week, confirming that Florida’s Citizens Property Insurance Corporation is redeeming the bond early.
Artemis has seen documentation explaining that Florida Citizens has used the approval it received from its Board recently to make an early call (or early redemption) of its $300 million Everglades Re II (Series 2015-1) catastrophe bond transaction.
The optional termination notice explains that the underlying property catastrophe excess of loss reinsurance contract between Everglades Re II and Citizens is set to be terminated as of April 26th 2017.
At that point the bonds will, we assume, be redeemed and investors will receive their principal back.
Florida Citizens is able to recall the Everglades Re II cat bond on or before the 3rd May 2017, a year ahead of its scheduled maturity, without paying any call premium to the cat bond investors.
The termination of the reinsurance agreement signals that the early redemption process has begun and the bond will be recalled around these dates.
It’s good timing for Florida Citizens, as the $1.5 billion Everglades Re Ltd. (Series 2014-1) cat bond is due for redemption on the 28th April 2017, which means the insurer will be able to look at its risk transfer afresh in advance of the U.S. wind season and decide on the best mix of traditional reinsurance and catastrophe bonds.
Of course it also allows Citizens to take advantage of the current price situation in the catastrophe bond market, and it should be able to make a considerable saving on its cover, as well as making the protection it buys in 2017 match its actual exposure more closely.