Florida Citizens targets $200m indemnity cover with Everglades Re II cat bonds

Florida’s Citizens Property Insurance Corporation is back in the catastrophe bond market with a dual-series issuance of Everglades Re II Ltd. (Series 2023-1 & 2023-2) notes, seeking collateralized reinsurance for both its Coastal and Personal Lines Accounts for the upcoming wind season only.

Having already secured $500 million of industry-loss triggered reinsurance from the capital markets through a Lightning Re Ltd. (Series 2023-1) catastrophe bond issuance in March, as expected the property insurer of last resort for Florida is back with an indemnity deal.

We reported back in March that in addition to the Lightning Re cat bond we expected Florida Citizens to sponsor an indemnity Everglades cat bond as well, if market conditions were conducive.

As anticipated, the insurer is now back with a dual-series of Everglades Re II Ltd. notes on offer to cat bond investors, although these are being issued as discount notes (to the original principal amount), so without a coupon and more akin to zero-coupon, we’re told.

The target is to secure $200 million or more of collateralized named storm reinsurance from the capital markets, to provide cover to the Florida Citizens Coastal and Personal Lines Accounts, with one Series of notes targeted for each Account.

Both Series of notes being issued will provide Florida Citizens with named storm reinsurance protection, on an indemnity and annual aggregate basis, but only until January 8th 2024 we understand.

This is because Florida Citizens is set to merge its three accounts (Coastal Account, Personal Lines Account and Commercial Lines Account) into a single Citizens Account, effectively transitioning its reinsurance structure from three towers into a single one for future years.

So these cat bonds are being issued as zero-coupon for this reason, as they are only set to be on-risk for a single wind season, it seems.

A Series 2023-1 Class A tranche of notes are sized at $100 million, to provide aggregate reinsurance to the Citizens Coastal Account, which encompasses personal and commercial residential wind and multi-peril policies, we’re told.

The Series 2023-1 Class A notes will cover Citizens for losses from an attachment point of $4.01 billion, exhausting at $5.18 billion, giving them an initial attachment point of 1.92%, an initial base expected loss of 1.59% and these notes are being offered with price guidance in a range from 88.25% to 88.75% of the original principal (a rough 11.25% to 11.75% equivalent to a rate-on-line or coupon).

A Series 2023-2 Class A tranche of notes are sized at $100 million, to provide aggregate reinsurance to the Citizens Personal Lines Account, which only features personal residential multi-peril policies, we understand.

The Series 2023-2 Class A notes will cover Citizens for losses from an attachment point of $6.486 billion, exhausting at $9.491 billion, giving them an initial attachment point of 1.23%, an initial base expected loss of 0.92% and these notes are being offered with price guidance in a range from 89.5% to 90% of the original principal (a rough 10% to 10.5% equivalent to a rate-on-line or coupon).

It’s good to see Florida Citizens looking to build on its catastrophe bond coverage for this last wind season where it has these multiple accounts in place.

In 2024, Citizens reinsurance buying may prove a less complicated affair, with a single reinsurance tower into which it can insert multi-year cat bonds to diversify its coverage across its losses more simply.

However, any investors or reinsurers that avoided certain Accounts in the past, will no longer have that option, with Florida Citizens named storm losses being ground-up across all the property exposures in its portfolio from next year.

You can read all about these new Everglades Re II Ltd. (Series 2023-1 & 2023-2) catastrophe bonds being sponsored by Florida’s Citizens Property Insurance Corporation and view details of more than 900 other cat bond issuances in the extensive Artemis Deal Directory.