Florida Citizens targets $300m+ Everglades Re II 2020 cat bond

Florida Citizens, the state-supported insurer of last resort, is back in the catastrophe bond market for what will be its seventh issuance, seeking support for a $300 million or greater Everglades Re II Ltd. (Series 2020-1 & 2020-2) deal that will also expand coverage to the Citizens personal lines account for the first time.

Florida’s Citizens Property Insurance Corporation has historically only sought coverage for its coastal account through its six previous catastrophe bond issues.

Across those six transactions, Florida Citizens has secured some $3.35 billion of fully-collateralised reinsurance against tropical storm and hurricane losses from catastrophe bond investors and the capital markets.

Now, with its seventh Everglades cat bond, Florida Citizens is looking to bring the capital markets into reinsurance tower for its personal lines account, where multi-peril homeowner policies are the focus of the subject business, we understand from sources.

That’s in addition to seeking more cat bond-backed reinsurance coverage for its coastal account as well, where the subject business features both wind-only and multi-peril policies, across both personal and commercial residential classes of insurance business.

As a result, Florida Citizens latest Everglades Re catastrophe bond is coming to market in two series of notes, one for the coastal account and one for the personal lines account.

Of the current $300 million target, Florida Citizens is seeking $200 million of reinsurance for its coastal account tower, with the other $100 million for the personal lines account.

Both cat bond series will sit alongside traditional sources of reinsurance spanning some $900 million of its two reinsurance towers, so the chances of this issuance upsizing are set to come down to pricing and how the capital market compares to the traditional market.

As we’ve seen before, if catastrophe bond market pricing is deemed conducive, Citizens has significantly upsized on its cat bond issues. So it will be interesting to see how this new arrangement fares, given cat bond market returns have clearly risen but reinsurance renewal rates for Florida are expected to rise too.

Everglades Re II Ltd. will seek to two tranches of notes, Series 2020-1 Class A and Series 2020-2 Class A notes, with both set to provide Florida Citizens with annual aggregate reinsurance coverage based on an indemnity trigger, across a three-year term.

The reinsurance protection will be against named storm losses affecting the state of Florida where all of Citizens policies are located.

The Series 2020-1 Class A tranche of notes currently target $200 million of reinsurance protection covering Citizens coastal account subject business, from an attachment point of $1.446 billion of losses across a to-be-defined share of a $900 million layer of the tower, giving the notes an initial expected loss of 1.93%. These notes are offered with price guidance of 5.75% to 6.5%.

While the Series 2020-2 Class A tranche of notes target $100 million of reinsurance protection for Citizens personal lines account tower, attaching at $1.641 billion of losses across a $637 million layer, giving the notes an initial expected loss of 1.22%. These notes are offered with price guidance of 4.75% to 5.5%.

Both tranches could be upsized, as they will sit alongside traditional aggregate reinsurance that Citizens has to procure for the 2020 hurricane season. So pricing on both traditional and alternative sides of the reinsurance market are likely to define how this is split.

It’s good to see Florida Citizens turning to the cat bond markets again. As a regular sponsor, Citizens has benefited greatly from its access to the capital markets, in diversifying its reinsurance program and helping it to better manage its capital needs.

We’ll keep you updated as Florida Citizens new Everglades Re II Ltd. (Series 2020-1 & 2020-2) catastrophe bond comes to market and you can read about every cat bond Citizens has ever sponsored in the Artemis Deal Directory.