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Florida takeout insurer Heritage in second Citrus Re cat bond


Florida Citizens takeout insurer and first time catastrophe bond sponsor Heritage Property and Casualty Insurance is issuing a second series of cat bond notes already, with the launch of Citrus Re Ltd. (Series 2014-2).

The insurers Citrus Re Ltd. (Series 2014-1) cat bond issuance has only just about completed, having upsized that deal to $150m and then priced it right at the low-end of a reduced coupon range just a few days ago.

It seems that this successful cat bond issuance experience has given the insurer an appetite for the cat bond market and Artemis understands from sources that it has launched a second series from its Citrus Re special purpose vehicle which is being marketed rapidly in order to close it as soon as possible.

Interestingly, the Citrus Re 2014-2 issuance, a $50m single tranche of notes currently, is extending the cat bond protection up a layer in the insurers reinsurance programme, to the layer directly above the 2014-1 deal.

Citrus Re 2014-2 is again a pure Florida named storm cat bond again looking to secure Heritage three-year fully collateralized reinsurance cover, on an indemnity and per-occurrence basis.

The Citrus Re 2014-1 notes have an attachment point of $200m and an exhaustion point of $350m, but this new series of notes will cover the layer above, from an attachment of $350m up to an exhaustion point of $450m, sources explained.

With the deal currently offering $50m of notes, but this higher layer being $100m in size, it would be no surprise to see Heritage upsize it to cover the full layer, after which its cat bond capital markets sourced reinsurance protection would run from $200m to $450m of its tower.

As it covers a higher layer, the probability of attachment for this Citrus Re 2014-2 cat bond is lower than the first issuance. The 2014-2 notes have an attachment probability of 1.1%, an exhaustion probability of 0.9% and an expected loss of 1.04%.

As with the earlier series of notes, 2014-2 also has the ability to add extra U.S. states to the covered area at the annual reset, giving Heritage the chance to protect risks outside of Florida and perhaps also acting as a capital source to help it to expand into new areas if it chose. The notes also feature a variable reset feature allowing it to be reset within a range of expected losses.

The $50m (currently) Citrus Re 2014-2 cat bond notes are being offered with a coupon price guide range of 3.75% to 4%, Artemis understands. The 2014-1 series of notes eventually priced at a reduced 4.25%, so this new tranche looks to have been priced to sell and while the pricing may decline before it completes, we wouldn’t expect it to drop as far as the previous tranche.

Again Willis Capital Markets & Advisory are said to be the sole structuring agent and bookrunner for the Citrus Re 2014-2 cat bond and AIR Worldwide are providing risk modelling services, as they both have for the 2014-1 deal.

It’s encouraging to see new sponsors come to market once and gain an appreciation for the catastrophe bond issuance process. For a new sponsor to come back again so soon after its first deal is perhaps testament to the current low pricing environment and strong investor appetite in the ILS market, making extending the cover provided by cat bonds too good an opportunity to miss.

We will again update you as this second cat bond from Heritage Property and Casualty Insurance comes to market. Details of the Citrus Re Ltd. (Series 2014-2) transaction have been added to the Artemis Deal Directory.

Q1 2014 Catastrophe Bond & ILS Market Report – A Record Quarter

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This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the first-quarter of 2014, looking at the new risk capital issued and the composition of the transactions completed during Q1 2014. Download your copy here.

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