As expected Louisiana Citizens Property Insurance is returning to the catastrophe bond market for the third time with a new SPI vehicle to sponsor a $100m or greater Pelican III Re Ltd. (Series 2015-1) indemnity bond.
Louisiana Citizens, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, has been planning to replace the soon to mature $125m Pelican Re Ltd. (Series 2012-1) catastrophe bond at its next reinsurance renewal.
Hence the registration of a new Bermuda domiciled special purpose insurer (SPI) named Pelican III Re Ltd. and the launch of a single Series 2015-1 tranche of Class A notes, currently sized at $100m, as the insurer seeks a replacement source of capital markets backed protection.
Pelican III Re Ltd. is offering a $100m tranche of notes to investors as Louisiana Citizens seeks the capital to fully collateralize reinsurance agreement between itself and the SPI which will cover named storm (so hurricane and tropical storm) risks in the State of Louisiana over a three-year term.
The named storm reinsurance protection afforded by the Pelican III Re 2015-1 cat bond will be on an indemnity trigger and per-occurrence basis and Artemis understands the transaction will feature a variable reset.
Sources said that the protection provided by the Pelican III Re notes will kick in at an attachment point of $175m and cover up to an exhaustion point at $319m, so a $144m layer of the insurers reinsurance programme.
That attachment point is slightly lower than the maturing Pelican Re 2012 deal, which attached at $200m of losses, so Louisiana Citizens has elected to move its cat bond cover down the tower slightly.
In terms of initial attachment probability the Pelican III Re deal is set at 4.44%, with an exhaustion probability of 2.35% and a base expected loss of 3.23% (rising to 3.51% on a sensitivity WSST case).
The attachment probability is slightly lower than the maturing bond, which was set at 4.74% with an expected loss of 3.25%, which likely reflects the changed risk profile of the insurer, as Louisiana Citizens has been working to depopulate some policies back to the private insurance market.
The $100m of notes are being offered to ILS investors with a coupon guidance range of 6.25% to 7%, we’re told, which would give the deal a multiple in the range of 1.9 times to 2.2 times the expected loss. It will be interesting to see how investors respond and where this deal prices as some are showing a desire to maintain a rough floor on pricing at around a 2.1 multiple.
Comparing the risk return profile to the previous two Pelican Re cat bonds, this deal is priced aggressively. The maturing 2012 deal which had a very similar risk profile, as this latest Pelican III Re is a replacement for it, priced at what now seems a massive 13.75% so approximately double the yield.
The 2013 Pelican Re Ltd. (Series 2013-1) is a lower risk cat bond, with an expected loss of 1.88%, but priced at 6%.
What a change three or two years make in terms of the reduction in pricing of property catastrophe bonds. A halving in return over three years reflects the movement in reinsurance market pricing as well for some peak U.S. risks.
The Pelican III Re 2015-1 catastrophe bond is being brought to market by GC Securities, acting as sole structuring agent and bookrunner, while AIR Worldwide is providing the risk modelling services.
The cat bond will launch in April, we understand. Artemis will update you as this Pelican III Re Ltd. (Series 2015-1) catastrophe bond comes to market and you can read about it and every other cat bond in the Artemis Deal Directory.