Louisiana Citizens Property Insurance’s latest catastrophe bond transaction, Pelican III Re Ltd. (Series 2015-1), has now been priced and at a level below the guidance, showing that investors were very willing to support the insurers risk transfer needs, even at a low multiple.
The Pelican III Re cat bond is a replacement for the maturing Pelican Re Ltd. (Series 2012-1) transaction. Sized with a single $100m tranche of notes, Louisiana Citizens will benefit from reinsurance cover for named storm (so hurricane and tropical storm) risks in the State of Louisiana over a three-year term from their sale to investors.
The coverage afforded by the Pelican III Re 2015-1 cat bond will be on an indemnity trigger and per-occurrence basis, triggers at an attachment point of $175m and covers up to an exhaustion point at $319m, so covering a $144m layer of the insurers reinsurance programme.
When this cat bond launched it had price guidance of 6.25% to 7% for the $100m tranche of notes. With an expected loss of 3.23% on a base case and 3.51% on a sensitivity case basis, the multiple for this deal looked low from the off.
Now it transpires that Louisiana Citizens have been able to secure the protection at a very low rate, with final pricing dropping below the low-end of guidance to 6%.
That’s a multiple of 1.86 times the base expected loss and 1.7 times the sensitivity case, which is low compared to many recent cat bonds, perhaps reflecting the lower risk of the Louisiana coastal area compared to Florida and other hurricane zones.
The previous Pelican Re 2012-1 cat bond had a similar risk profile, but priced at what to investors must seem a massive coupon of 13.75%. So this new cat bond represents a rough halving of pricing for Louisiana Citizens which will benefit their risk transfer programme significantly.