As expected, Florida’s Citizens Property Insurance Corporation is back in the catastrophe bond market, with a $250 million target for an Everglades Re II Ltd. (Series 2017-1) transaction that looks like it aims to capitalise on the ILS investment market appetite for risk, given its low launch pricing.
Florida Citizens was always going to return to the cat bond market in 2017 for what will be the fifth Everglades Re issuance, if pricing and conditions were right, as its record $1.5 billion Everglades Re 2014-1 transaction is scheduled to mature at the end of this month.
Additionally, Citizens has redeemed its $300 million Everglades Re II 2015-1 cat bond early, despite the fact it doesn’t mature for a year, as it recognised an opportunity to call that bond at no premium so it can return to the ILS market to secure cover at today’s prices.
The new Everglades Re II 2017-1 cat bond looks like it targets exactly that, with pricing at launch set at levels that reflect the coupons achieved by other sponsors in recent weeks.
With ILS investor appetite for new cat bonds clearly high right now, Florida Citizens stands to benefit from being able to place risk in the market at significantly cheaper levels than its expiring and redeemed bonds.
The Everglades Re II transaction being marketed to investors will offer a single $250 million Series 2017-1 tranche of Class A notes, we understand, with exposure linked to Florida named storm risks across a three-year term.
The notes will provide Florida Citizens with a fully collateralized source of annual aggregate reinsurance protection against losses from named storms (so the impacts of tropical storms and hurricanes) hitting Florida, with the cat bond featuring an indemnity trigger.
Subject business is all from the Citizens coastal account, and consists of both personal and commercial residential property exposures.
We’re told that the notes will attach at $2.151 billion and cover a percentage of losses up to $3.031 billion, which does leave ample room for the transaction to upsize should Citizens choose to.
The resulting initial attachment probability is 2.49% and the expected loss 1.95% for the Everglades Re II 2017-1 notes. The currently $250 million of notes are being offered to investors with coupon price guidance in a range of 5% to 5.75%.
That’s a low multiple as compared to Citizens previous Everglades cat bonds, but given the pricing environment for catastrophe bonds that’s no surprise, based on recent transaction coupons.
We’ll keep you updated as this new deal from Florida Citizens comes to market.