Florida Citizens secures PLA cat bond at $200m, priced above guidance

Florida’s Citizens Property Insurance Corporation has now secured its latest catastrophe bond that will provide it $200 million of reinsurance protection, but pricing for the Everglades Re II Ltd. (Series 2022-1) transaction eventually settled above the initial guidance.

Readers will know we’ve been covering Florida Citizens experience in the reinsurance and capital markets at this renewal season, as the insurer of last resort had to downsize its appetite for protection and place more in the traditional reinsurance market, on rising prices and risk aversion among investors.

But the insurer persisted with its single tranche issuance of a new catastrophe bond focused on securing reinsurance for its Personal Lines Account (PLA), which we’re now told has been priced to provide $200 million of limit.

That’s a small proportion of the limit Citizens is actually securing at this renewals, but as we explained yesterday the insurer had been hoping to sponsor catastrophe bonds for its Coastal Account portfolio as well, but withdrew those offerings as early price indications suggested the traditional reinsurance market would be more attractively priced.

So, Citizens returned to the catastrophe bond market in late April with this Everglades Re II cat bond transaction that had a relatively small $100 million indicative size at launch.

The PLA-focused catastrophe bond then looked set to increase in size, with the target lifted to between $100 million and $200 million of reinsurance with the new issuance.

We’re told the upper-target was secured, so the $200 million of cat bond backed limit.

But it’s now clear from Citizens staffs’ comments at a recent Board meeting, that they would have liked more had pricing been conducive.

This $200 million single tranche of Class A Series 2022-1 notes that special purpose insurer Everglades Re II Ltd. will issue, are going to provide Florida Citizens with a multi-year source of annual aggregate and indemnity trigger based reinsurance protection against named storms or hurricanes impacting the state of Florida, running to May 2025.

Being for the Personal Lines Account, the reinsurance will largely cover losses to personal residential, multi-peril homeowner policies with wind, that Florida Citizens has issued or assumed.

The Series 2022-1 Class A notes will have an attachment point of $4.563 billion of losses, covering a share right up until exhaustion at $6.02 billion, giving them an initial attachment probability of 1.07% and an initial expected loss of 0.83%.

At first, the notes were marketed to cat bond investors with price guidance in a range from 6.5% to 7.25%.

We were later told the guidance was lifted to 7.75%, so above the top-end of initial coupon guidance and that is where our sources now tell us the deal has been priced.

In multiple-at-market terms, this is more than 9 times the base expected loss, which is particularly significant given Citizens last PLA focused cat bond issued in 2021 priced with just a 5.6 times multiple of base EL.

As we said before, Florida Citizens clearly sees the value in maintaining the capital markets participation in its reinsurance tower and this new deal, while smaller than perhaps hoped for, still marks an expansion of cat bond coverage within Citizens Personal Lines Account reinsurance tower.

You can read all about Florida Citizens latest catastrophe bond, the Everglades Re II Ltd. (Series 2022-1) transaction, as well as every other cat bond transaction in our extensive Artemis Deal Directory.