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Louisiana Citizens new $125m Pelican 2021 cat bond prices far below guidance


Louisiana Citizens Property Insurance Corporation, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, looks set for strong execution with its sponsorship of a new $125 million Pelican IV Re Ltd. (Series 2021-1) catastrophe bond.

louisiana-citizens-logoLouisiana Citizens returned to use its Bermuda domiciled special purpose insurer Pelican Re IV Ltd. for this 2021 deal, after having switched to Singapore for a Catahoula Re Pte. Ltd. cat bond deal last year.

As we reported earlier this month, Louisiana Citizens is seeking $125 million of both occurrence and aggregate reinsurance protection against losses from named storms and severe thunderstorms affecting the state of Louisiana over a three-year term.

We’re told that the deal has not increased in size, with the target still $125 million of collateralized reinsurance across the two tranches being issued, one per-occurence, the other aggregate.

However, the pricing has declined significantly, with one tranche set to price 25% below the mid-point of initial spread guidance and the other 12.5% down.

So, Pelican IV Re Ltd. will issue a $75 million tranche of Series 2021-1 Class A notes, which will provide per-occurrence protection, attaching at $245 million of losses and exhausting at $345 million.

These Class A notes will have an initial expected loss of 0.63% and were first offered to cat bond investors with price guidance in a range from 2.75% to 3.25%, but this has now been fixed at just 2.25%, which is 25% down on the initial mid-point.

These notes will sit above last year’s Catahoula Re cat bond in Louisiana Citizens reinsurance tower.

Pelican IV Re Ltd. will also issue a $50 million tranche of Series 2021-1 Class B notes, which will provide the annual aggregate protection, attaching above $70 million and covering losses to $120 million, with a $1 million franchise deductible in place.

The Class B notes have an initial expected loss of 0.44%, showing they are relatively remote risk for an aggregate arrangement, and were first offered to cat bond investors with coupon price guidance in a range from 5.5% to 6.5%. This pricing has now been fixed at 5.25%, which represents a 12.5% decline in spread from the initial guidance mid-point.

While this is yet another catastrophe bond to experience a steep decline in pricing thanks to investor demand, looking at the multiples at market they will actually pay investors returns that are quite attractive, compared to the levels of risk ceded, so it’s not surprising to see these price declines.

This Pelican IV Re Ltd. (Series 2021-1) catastrophe bond will be issued next week. You can read about this and every other cat bond ever issued in our Artemis Deal Directory.

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