Louisiana Citizens Property Insurance Corporation, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, is back in the market for its latest slice of catastrophe bond backed reinsurance protection, with a $125 million Pelican IV Re Ltd. (Series 2021-1) deal.
For its 2021 catastrophe bond, Louisiana Citizens has returned to use its Bermuda domiciled special purpose insurer Pelican Re IV Ltd., after having switched to Singapore for a Catahoula Re Pte. Ltd. cat bond deal last year.
For this latest cat bond from Louisiana Citizens, its special purpose insurer (SPI) named Pelican IV Re Ltd. will issue two tranches of notes that will be sold to investors and the proceeds from the sale used to fully-collateralize reinsurance agreements between the SPI and sponsor Louisiana Citizens.
The current proposed issuance size is $125 million, we’re told, split across two tranches of notes, one of which will provide per-occurrence reinsurance protection and the other annual aggregate coverage, both on an indemnity trigger basis.
This is the first catastrophe bond where Louisiana Citizens has sought out annual aggregate reinsurance protection, reflecting a new approach to utilising the capital markets for both peak loss protection on an occurrence basis, as well as frequency reinsurance cover on an aggregate basis.
The $125 million of protection across the two tranches of notes will provide Louisiana Citizens with both occurrence and aggregate reinsurance protection against losses from named storms and severe thunderstorms affecting the state of Louisiana.
The reinsurance protection will run across three annual risk periods, over a three-year term.
Pelican IV Re Ltd. will look to 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, we’re told.
The Class A notes will have an initial expected loss of 0.63% and are being offered to cat bond investors with price guidance in a range from 2.75% to 3.25%, we understand.
These notes will sit above last year’s Catahoula Re cat bond in the reinsurance tower.
Pelican IV Re Ltd. will also look to 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 will have an initial expected loss of 0.44%, showing they are relatively remote risk for an aggregate arrangement, and are being offered to cat bond investors with coupon price guidance in a range from 5.5% to 6.5%, we’re told.
Louisiana Citizens 2018 catastrophe bond transaction, a $100 million Pelican IV Re Ltd. (Series 2018-1) deal, is scheduled for maturity soon and so this new transaction looks set to potentially replace that occurrence cover, as there is room for the Class A tranche of Series 2021-1 notes to grow, while also providing some aggregate reinsurance as well.
Why the switch back to Bermuda? It’s hard to say, as only the sponsor makes that decision. But it’s possible Louisiana Citizens wants to continue with both its catastrophe bond vehicles now and the Catahoula structure may reappear next year.
Issuance of this new Pelican IV Re catastrophe bond is scheduled for May.