Heritage targets $180m Citrus Re 2023-1 named storm cat bond

Nationally expansive and Florida headquartered property and casualty insurer Heritage Insurance Holdings, Inc. has returned to the catastrophe bond market with a Citrus Re Ltd. (Series 2023-1)  deal, seeking $180 million or more in named storm reinsurance protection from the capital markets.

Heritage Insurance Holdings is a long-standing sponsor of catastrophe bonds for its reinsurance needs, having sponsored its first Citrus Re cat bond back in 2014 and returned a number of times since.

This new Citrus Re 2023-1 catastrophe bond will be the eighth issuance under the Citrus name that Heritage has sponsored and we have listed in our extensive Deal Directory.

This new cat bond from Heritage sees the company seeking protection for its own book, as well as that of subsidiaries Narragansett Bay Insurance Company (NBIC) and its Hawaii based insurer Zephyr.

Citrus Re Ltd., a Bermuda based special purpose vehicle, will issue two tranches of notes, that will be sold to investors and the proceeds used to collateralize reinsurance agreements for the cedents benefit.

The Citrus Re 2023-1 cat bond notes will provide Heritage and its subsidiaries with US named storm reinsurance protection, on an indemnity trigger and per-occurrence basis, across a three-year term to June 2026, we understand.

An $80 million Class A tranche of notes come with an attachment probability of 2.05%, a base expected loss of 1.66% and are being offered to investors with spread price guidance in a range from 6.75% to 7.75%.

A larger $100 million Class B tranche come with an attachment probability of 2.62%, a base expected loss of 2.54% and are being offered to investors with spread price guidance in a range from 9% to 10%, we understand.

Both layers of reinsurance coverage would attach at $390 million of losses, we’re also told, but the Class A notes will cover a percentage of a layer to $760 million, while the Class B notes will cover a percentage of a thinner layer to exhaustion at $505 million.

From the information we have from sources, it’s not immediately clear why the attachment probability differs, but this is potentially due to differences in the way reinsurance inures to each tranche.

As we understand it, initially both classes of notes will cover losses for Heritage in Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, North Carolina, Penn, Rhode Island, South Carolina, Virginia, but the Class B layer also cover Heritage for losses in Hawaii.

It’s good to see Heritage returning to the cat bond market for the second year in succession, as the insurer had been absent from the market between 2017 and that last issuance in 2022.

You can read all about this Citrus Re Ltd. (Series 2023-1)  catastrophe bond and every other cat bond issued in our extensive Artemis Deal Directory.