The Pelican Re Ltd. catastrophe bond which is sponsored by Louisiana Citizens Property Insurance Corporation, a non-profit insurer of last resort for residential and commercial property owners in the state of Louisiana, has increased in size before closing and has now priced. The first cat bond from Louisiana Citizens, Pelican Re will provide them with indemnity (UNL) cover on a per occurrence basis for hurricanes impacting Louisiana State over a three year period.
The Pelican Re deal began marketing as a $100m single tranche of notes but we understand has increased in size to $125m before close. As we mentioned in our first article on the Pelican Re cat bond transaction, the notes have a low attachment point as Lousiana Citizens are seeking a robust layer of cover. We now have some more details on the structure of this deal and can tell you that the notes attach at $200m of losses and the exhaustion point is set at $400m. This translates into a high probability of attachment at 4.74% and a high expected loss of 3.25%. This deal is certainly risky, in fact just about as risky as most cat bonds get. Unsurprisingly the pricing for the deal is quite high with the coupon set to be 13.75% above money market funds which is towards the top end of the expected range.
It’s an interesting transaction, not just because it involves another of the State windstorm insurers, but mainly due to the low attachment point and the layer of cover this cat bond provides. It’s a much lower level of cover than most U.S. hurricane cat bonds, and while this means it’s more risky the fact that it has priced in the expected range and also upsized suggests that investors are becoming more accepting of riskier tranches of cat bond notes.