ILS capital dominates Citizens reinsurance renewal, led by Nephila’s $600m line

Third-party sources of reinsurance capital, largely from the insurance-linked securities (ILS) market, has dominated the reinsurance renewal of Florida’s Citizens Property Insurance Corporation in 2021, with ILS giant Nephila Capital the biggest market by a long way thanks to a $600 million line.

The ILS market has demonstrated its commitment to the Florida property insurance marketplace again in 2021, taking the largest share of Florida Citizens traditional reinsurance program at the June 1st renewals.

In total, we can identify at least $951 million of reinsurance limit committed to Florida Citizens renewal program as coming from third-party capital and ILS market sources, out of total limit of almost $1.65 billion.

So that means ILS and third-party reinsurance capital sources committed almost 58% of the reinsurance limit Citizens needed for the traditional part of its reinsurance tower for the coming hurricane season.

Nephila Capital is by far the largest participant in Florida Citizens traditional reinsurance renewal for 2021, having provided a huge almost $601 million of the total limit.

That $600 million is spread across multiple layers of the reinsurance tower, for both the Coastal Account and Personal Lines Account, all on a collateralized basis and so accounting for roughly 36% of the limit secured by Citizens.

It’s another huge commitment to the Florida property insurance market from Nephila, who has always been one of the largest players in the states catastrophe reinsurance market. Notable also is the fact Nephila participated across every layer of the program.

The next largest participant on a collateralized basis was D.E. Shaw Re, the reinsurance entity of the hedge fund investment group.

D.E. Shaw provided almost $170 million of the total limit secured by Citizens, but only participated on around half the layers on offer.

LGT ILS Partners was thee next largest participant from the ILS and collateralized reinsurance markets, providing just over $59.5 million of limit, all underwritten via its Lumen Re Ltd. reinsurer.

After that we have specialist ILS manager Pillar Capital with just over $48.1 million of limit, which was fronted for the ILS funds by global reinsurer Hannover Re.

After that we have cat bond and ILS specialist manager Fermat Capital Management, which provided over $29.3 million of limit, all of which was written through the Horseshoe operated transformer and securitization vehicle Eclipse Re.

As a result of this, we suspect we may see another private cat bond issued by Eclipse Re, as Fermat uses the vehicle to source risk in a form suited to its large cat bond fund strategies.

The next ILS market participant was Leadenhall Capital Partners, which backed over $27.6 million of the reinsurance renewal for Florida Citizens, working with Amlin’s Lloyd’s syndicate 2001.

After that came ILS investment manager Securis Investment Partners, which took $11 million of the available limit for its funds.

Finally, the last identifiable ILS market participant was investor Quantedge, which tool almost $4.6 million of the renewal on a collateralized basis.

Aside from these players that are easily identifiable as ILS markets, or third-party capital collateralized players, there were other participants that likely either used some third-party capital, from their own ILS unit offerings, or will have ceded some of the risk to ILS capital in their managed vehicles.

Among these are RenaissanceRe, PartnerRe, Ariel Re, Swiss Re, Everest Re, TransRe and Validus, all of which have third-party capital relationships to feed with property catastrophe risk and may have sent a chunk of their participation in the Florida Citizens renewal that way.

When you add on Florida Citizens catastrophe bonds, of which the insurer secured $950 million at this renewal, it’s clear the ILS market is dominating its reinsurance program arrangements once again in 2021.

Including Citizens other outstanding $110 million Everglades Re II Ltd. (Series 2020-2) cat bond from last year, the insurer has $1.06 billion of cat bond backed reinsurance in-force for the 2021 season.

Which gives us a total of at least $2.01 billion of reinsurance limit available to Florida Citizens to help it pay for losses from hurricanes throughout the 2021 season that comes from the ILS market and other third-party reinsurance capital collateralized sources.