Heritage’s Citrus Re 2017-1 A cat bond notes partially redeemed, $36.7m extended

One of the loss-exposed tranches of Florida focused property and casualty insurer Heritage Insurance Holdings, Inc’s Citrus Re Ltd. catastrophe bonds has been partially redeemed by investors, with now $36.7 million of collateral from the originally $125 million tranche still retained by the sponsor and its maturity further extended.

The tranche in question is the Citrus Re Ltd. (Series 2017-1) Class A tranche of notes from one of Heritage’s cat bonds.

Heritage has been making reinsurance recoveries under some of its older catastrophe bonds, as it continued to deal with losses from 2017 and 2018 hurricanes including Irma.

Some of the insurers cat bonds began to pay out early in 2019, as we explained at the time, followed by a further reinsurance recovery with another tranche of Citrus Re notes that seemed to pay out in early April last year.

Now, this $125 million Citrus Re 2017-1 Class A tranche of notes is the latest to experience a change to its remaining principal, but in this case it seems to be due to a partial redemption by the cat bond and ILS investors in the notes.

After the partial redemption, Heritage’s Citrus Re 2017-1 Class A notes remaining principal has dropped to just slightly under $36.7 million.

This tranche of notes had been marked down for a roughly 55% to 60% loss on broker pricing sheets.

Now, with just this $36.7 million of principal remaining, the notes are marked down for bids of around 5 cents on the dollar, suggesting a further reinsurance recovery under this tranche is anticipated.

The remaining $36.7 million of principal from Heritage’s Citrus Re 2017-1 Class A notes has had its maturity date extended out to March 20th 2023, a particularly long extension likely to allow for the capture of any further loss development for the sponsor.

Some other tranches of Heritage’s cat bonds remain extended at this time and the company has already made a number of reinsurance recoveries under the Citrus Re program.

The Citrus Re Ltd. (Series 2015-1) Class B tranche of notes had its principal reduced by around half (unsure of this was a recovery or redemption) to $45.14 million and the notes are currently priced for bids of around 10 to 20 cents on the dollar.

The Citrus Re Ltd. (Series 2016-1) Class D-50 tranche of notes had its principal reduced to $77.49m (again, unsure of this was a recovery or redemption) and is priced for bids of around 20 to 30 cents.

It will be interesting to see whether Heritage will return to the cat bond market anytime soon to replenish its eroded capital market backed reinsurance protection.

Having not sponsored a new cat bond since 2017, Heritage’s return is overdue. But having made recoveries the insurer will have to ensure it prices any further cat bonds appropriately, to compensate investors for their losses to a degree, or risk its reception not being as strong as it may have hoped for (as seen with UPC this month).

We’ll update you as and when any further information comes to light on these cat bonds and you can view details of many at-risk tranches in our directory of catastrophe bond losses and cat bonds considered at-risk.