Louisiana Citizens Property Insurance Corporation has now priced its new Bayou Re Ltd. (Series 2023-1) catastrophe bond deal, which will settle at $195 million in size becoming its largest cat bond sponsored to-date.
This will now be the largest catastrophe bond that Louisiana Citizens Property Insurance Corporation has ever sponsored and is the ninth catastrophe bond from the property insurance residual market, according to our Deal Directory.
When this Bayou Re cat bond deal launched Louisiana Citizens was seeking $150 million of named storm reinsurance protection from the capital markets.
This Bayou Re 2023-1 cat bond will provide Louisiana (LA) Citizens with a multi-year source of reinsurance from the capital markets, covering certain named storm losses in its home state, over a three year period, on an indemnity and per-occurrence basis.
As we reported earlier this week, LA Citizens target for this Bayou Re cat bond had increased, with up to $220 million sought in reinsurance coverage.
But we’re now told that the notes were priced yesterday, to provide LA Citizens $195 million in named storm reinsurance protection, so still becoming the largest cat bond the residual market insurer has ever sponsored.
The Class A tranche of notes were originally sized at $100 million, but at pricing they have now been fixed at the upper $120 million target level, we’re now told.
The Class A notes come with an initial expected loss of 2.14% and were first offered with pricing guidance in a range from 13.25% to 14.25%, which was subsequently adjusted to an updated spread guidance of from 12.75% to 13.25% and sources have now said that the spread was fixed at the lower-end of the revised range, at 12.75% for this tranche.
The Class B tranche of notes were originally sized at $50 million and that target was subsequently raised to between $60 million and $100 million of reinsurance coverage sought. We’re now told the Class B tranche has been priced at $75 million in size.
The Class B notes are the riskier layer, with an initial expected loss of 3.09%. These notes were first offered with spread price guidance in a range from 18.5% to 19.5%, which was fixed at the upper-end of 19.5% and that is where they priced yesterday, we understand.
The multiples-at-market to be paid for this new Bayou Re cat bond are significant, with the Class A notes at almost 6 times the expected loss and the Class B notes at 6.3 times EL.
This likely reflects storm activity experienced in Louisiana in recent years, as well as the fact Louisiana Citizens has made reinsurance recoveries under its cat bond program in recent years.
But it’s good to see the property insurer of last resort for the state of Louisiana continuing to expand its use of catastrophe bonds and the fact this is the largest deal it has ever sponsored bodes well for that to remain the case.
You can read all about this new Bayou Re Ltd. (Series 2023-1) catastrophe bond and every other cat bond issued in the extensive Artemis Deal Directory.
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