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Heritage’s Citrus Re 2016 cat bond set for $250m at top-end of pricing


Florida headquartered Heritage is set to secure $250m of reinsurance protection for its Heritage Property & Casualty Insurance and Zephyr Insurance Company subsidiaries from its new Citrus Re Ltd. (Series 2016-1) catastrophe bond transaction.

According to sources the Citrus Re 2016-1 cat bond does not look like it will upsize, being set to secure the $250m of fully-collateralized reinsurance cover Heritage was looking for from the off, however the pricing for each of the two tranches issued has been set at the top-end of initial guidance.

The Citrus Re 2016-1 cat bond sees Heritage looking for $250m of reinsurance from the capital markets for its Heritage Property & Casualty Insurance and Zephyr Insurance Company subsidiaries. As the cat bond includes Zephyr, a Hawaii based property insurer Heritage is acquiring, the deal will provide both Florida and Hawaii named storm protection from the off.

The cat bond can subsequently be expanded to cover other regions as Heritage’s exposure grows as it moves into underwriting in new states.

There are two tranches of Series 2016-1 notes, a (currently) $150m Class D-50 tranche and a $100m Class E-50 tranche, being issued by Citrus Re to collateralize an underlying reinsurance agreement with the ceding insurers.

Protection from both tranches will be on a per-occurrence basis across three hurricane and named storm seasons and the notes feature an indemnity trigger.

At the latest update, sources said that the tranche sizes have remained the same, with the $150m Class D-50 tranche and $100m Class E-50 tranche remaining static at pricing.

However both tranches priced at the top-end of pricing, as once again ILS investors sought to ensure a certain multiple of return from their investments in the cat bond.

The Class D-50 notes, which have an expected loss of 3.01%, were marketed to ILS investors with coupon guidance of 7% to 7.5%, but priced at the top-end of that range at 7.5%, we’re told. In terms of multiple that’s 2.5 times the expected loss.

The riskier Class E-50 notes, which have an expected loss of 5.75%, were offered with price guidance of 10% to 10.5% and priced again at the upper end of that range, at 10.5%. As a multiple these notes offer 1.8 times the base expected loss.

Once again this Citrus Re 2016-1 cat bond has shown that investors will accept a much lower multiple for a higher-yielding cat bond investment opportunity, which should continue to encourage sponsors to bring higher risk/return tranches to market.

The Citrus Re Ltd. (Series 2016-1) catastrophe bond is due to complete later this week, securing Heritage the full $250m of reinsurance from the capital markets that it was seeking, and you can read all about it and every other cat bond in the Artemis Deal Directory.

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