In a clear sign of ILS fund demands for higher returns from underwriting catastrophe risks in the Florida reinsurance market, pricing for Florida Citizens’ new $300 million Everglades Re II Ltd. (Series 2020-1 & 2020-2) catastrophe bond has leapt significantly above the top-end of guidance.
As we explained earlier today, ILS funds are hoping for much better pricing and returns for underwriting business in Florida at the June 1st reinsurance renewals.
Where pricing and terms have not been so well-received, the underwriters of some large ILS funds have even been downing their pens in reaction to what is being offered.
The latest catastrophe bond from Florida Citizens, the state-supported insurer of last resort, clearly reflects the June reinsurance renewal dynamic in Florida, with pricing for both of its tranches of notes leaping high above the top-end of guidance.
As we explained earlier this month, Florida Citizens returned to the catastrophe bond market in search of at least $300 million of collateralised reinsurance protection to cover a section of its coastal account and personal lines account towers.
Florida Citizens is seeking $200 million of reinsurance protection for its coastal account tower from the new Everglades Re II 2020 catastrophe bond deal, with the other $100 million for the personal lines account.
With two tranches of notes being issued, both will provide Florida Citizens with three years of annual aggregate reinsurance protection.
The sizes of the tranches haven’t changed at this time, but our sources said that pricing has increased considerably.
The Series 2020-1 Class A tranche of notes continues to target $200 million of reinsurance protection covering Citizens coastal account subject business. These notes have an initial expected loss of 1.93% and were at first offered with price guidance of 5.75% to 6.5%.
We’re told that the coupon price guidance has now been elevated to 7.25% for this tranche, a 12% increase from the top-end of original guidance, or a huge 18% from the initial mid-point.
While the Series 2020-2 Class A tranche of notes still targets $100 million of reinsurance protection for Citizens personal lines account tower. This tranche of notes has an initial expected loss of 1.22% and were first offered with price guidance of 4.75% to 5.5%.
Now, the coupon price guidance for this tranche has leapt to 6.25%, reflecting a 14% increase from the top-end of initial guidance and a huge 22% from the initial mid-point.
These are the biggest price increases seen in the catastrophe bond market so far this year and a clear demonstration of ILS fund and investors demand for higher pricing at the upcoming reinsurance renewals.
It’s no surprise that some Florida based cat bond sponsors have balked at pricing and returned to the traditional market.
It’s also no surprise that ILS fund underwriters are downing pens where rates are not moving in a manner they feel is commensurate with the risk-adjusted returns they require from Florida reinsurance business this year.
It will be interesting to see whether these new, much higher coupons are sufficient to gain the $300 million target of investor support.
Looking at the multiples now on offer, it seems likely they will be.
We’ll keep you updated as Florida Citizens new Everglades Re II Ltd. (Series 2020-1 & 2020-2) catastrophe bond comes to market and you can read about every cat bond Citizens has ever sponsored in the Artemis Deal Directory.