Florida’s Citizens Property Insurance Corporation has now pulled the largest $200 million tranche of Coastal Account linked notes from its Everglades Re II Ltd. (Series 2020-1 & 2020-2) catastrophe bond issuance, leaving just a $100 million tranche being marketed.
Update: We spoke to Citizens CFO who said pricing was irrational and not conducive to locking in multi-year cover, so the insurer is looking to fill the Coastal layer with single year reinsurance instead.
Original article: It seems likely the move is a response to Florida reinsurance market conditions, as having already had to hike the marketed pricing considerably to meet the rate expectations of ILS investors we’re told that the insurer was still struggling to find sufficient support for the $200 million layer that would have provided reinsurance for its Coastal Account tower.
Florida Citizens had returned to the catastrophe bond market at the beginning of May in search of at least $300 million of collateralised reinsurance protection to cover a section of its coastal account and personal lines account towers.
The deal was offering $200 million of notes to provide reinsurance for the Florida Citizens Coastal Account and another $100 million to cover the Personal Lines Account, the first time the PLA had ever been included in one of the Citizens catastrophe bond deals.
Having already had to raise the prices considerably, by around 20% across the two tranches on offer, Florida Citizens has now taken the decision to pull the $200 million Coastal Account layer from the catastrophe bond issue.
It’s possible that cat bond investors just would not sign onto this layer in sufficient number even at the increased prices. However, it’s also possible that traditional reinsurance, or collateralised writers, could have privately supported this layer instead, perhaps at better pricing than the cat bond market was willing to.
It has happened before, that a large traditional reinsurance underwriter or one of the larger ILS funds has taken a significant layer of Florida Citizens program at keener pricing than the broader syndicated market had been offering. It will be interesting to see whether that is the case in 2020.
The remaining $100 million of Everglades Re II Series 2020-2 Class A notes will provide aggregate reinsurance protection for Florida Citizens personal lines account tower.
The pricing for this layer of notes has now been fixed at the top-end of the revised guidance at 6.25%, which represents a roughly 22% increase from the mid-point of the initial guidance range.
That demonstrates how Florida wind-exposed catastrophe reinsurance rates are moving at this renewals, perhaps also reflecting why the larger tranche got pulled if the pricing was considered to just be too high (or a better offer was found outside of the catastrophe bond market).
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.