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Heritage’s Citrus Re 2015-1 cat bond could hit $327.5m in size


Florida takeout insurer Heritage Property and Casualty Insurance Co. could see its Citrus Re Ltd. (Series 2015-1) catastrophe bond hit as much as $327.5m in size thanks to demand from investors, while pricing has moved to the mid and lower ends of guidance.

Heritage’s third catastrophe bond, it sponsored two takedowns under the Citrus Re Bermudian special purpose insurer in 2014, a $150m Citrus Re Ltd. (Series 2014-1) and a $50m Citrus Re Ltd. (Series 2014-2), is set to be the insurers largest yet by quite a margin.

The cat bond was launched almost a fortnight ago and sees Heritage seeking a collateralized source of reinsurance protection for Florida named storms initially, with an ability to update the covered area to include more states should the insurer choose, or expand into new states. The Citrus Re 2015-1 cat bond is structured with an indemnity trigger, providing protection on a per-occurrence basis.

Citrus Re 2015-1 is structured in three tranches of notes. At launch only the Class A tranche had a size associated with it, of $150m. Now, sources say that all three tranches have sizes and the pricing guidance has been narrowed as investors have shown their appetite to support Heritage’s reinsurance needs.

The Class A tranche of notes launched at $150m in size, with an expected loss of 1.22% (which rises to 1.41% using WSST sensitivity case) and price guidance of 4.25% to 5%.

At the latest deal update the Class A tranche is now being marketed as $150m to $200m in size and with price guidance narrowed towards the mid-point at 4.5% to 4.75%.

The Class B notes have an expected loss of 2.44% (2.79% on a WSST basis) and was offered to investors with a price guidance range of 6% to 6.25%. We understand that this tranche is now sized at $97.5m and the price guidance has moved to the bottom of guidance at 6%.

The Class C notes have an expected loss of 5.05% (5.64% on a WSST basis) and initial price guidance of 9% to 9.25%. This tranche is sized at $30m and the pricing has fallen to the bottom end of guidance at 9%.

So if the cat bond completes with the Class A tranche at the upper size at $200m, with a $97.5m Class B tranche and a $30m Class C tranche, Heritage Insurance will have a $327.5m catastrophe bond sourced collateralized reinsurance cover.

If you add that to its existing two cat bonds, that would give Heritage Insurance $527.5m of named storm reinsurance protection from its catastrophe bonds. For a company that was a first time sponsor a year ago is testament to the attractiveness of leveraging the capital markets as a major component of a reinsurance programme.

Heritage’s Citrus Re Ltd. (Series 2015-1) catastrophe bond is scheduled to complete in just over a week’s time. We’ll keep you updated as it progresses to market and you can read all about it in the Artemis Deal Directory.

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