Florida’s Citizens Property Insurance Corporation is back in the catastrophe bond market to sponsor a $100 million or greater Everglades Re II Ltd. (Series 2022-1) transaction, from which it is seeking named storm reinsurance protection for its Personal Lines Account book of business.
Florida Citizens is expected to buy anything up to $3.4 billion of new reinsurance and catastrophe bonds to get it through the 2022 US hurricane season.
But this first cat bond market entry from the property insurer of last resort for Florida is relatively small, having just a $100 million launch indicative size, according to Artemis sources. But, it is notable that it does have plenty of room to grow, should Florida Citizens choose to.
Also, this new Everglades Re II catastrophe bond from Florida Citizens is only designed to secure cover for the Personal Lines Account (PLA), leaving it open to the insurer to bring further cat bonds to cover more of its Coastal Account risks, should it need to.
Of course, Florida Citizens is also adept at mixing capital sources within its reinsurance tower and is also not averse to taking large lines from big underwriters as well, so it will be interesting to see how this cat bond issuance plays out and also how Citizens eventual reinsurance tower for 2022 breaks down.
It is encouraging to see the insurer back in the cat bond market though, especially at this time of spread widening in the market.
Using its Everglades Re II Ltd. special purpose vehicle, Florida Citizens is targeting at least $100 million of capital market backed reinsurance through the issuance of a single tranche of Class A Series 2022-1 notes.
Everglades Re II will issue the notes that will be sold to cat bond investors so the proceeds can collateralize a three-year reinsurance agreement for the sponsor, Citizens.
The notes are designed to provide Florida Citizens with a multi-year source of annual aggregate and indemnity trigger based reinsurance protection against named storms or hurricanes impacting the state of Florida, to May 2025, we’re told.
The coverage will be for the Personal Lines Account, as we said, so the reinsurance will cover losses to predominantly personal residential, multi-peril homeowner policies with wind, that Florida Citizens has issued or assumed.
Everglades Re II Ltd. will issue a $100 million or larger tranche of Series 2022-1 Class A notes, which will have an attachment point of $4.563 billion of losses, covering a share right up until exhaustion at $6.02 billion, we understand.
That’s a particularly tall slice of Citizens PLA reinsurance tower, which gives ample room for this new Everglades Re II cat bond to be upsized, significantly if the market pricing was conducive.
The Everglades Re II Series 2022-1 Class A notes will have an initial attachment probability of 1.07%, an initial expected loss of 0.83% and are being marketed to cat bond investors with price guidance in a range from 6.5% to 7.25%.
That’s a particularly high multiple-at-market, of as much as 8.3 times the expected loss at the mid-point of coupon guidance.
If we compare that to the PLA tranche of notes from Citizens 2021 cat bond issuances, which had an initial expected loss of 1.03% and priced at a 5.75% coupon, so had a multiple-at-market of 5.6 times EL, it’s clear the multiple is significantly higher this year.
Whether the much-higher multiple in 2022 will prove attractive enough to result in a significant cat bond issuance, allowing Citizens to fill more of that tall slice of its program with capital market backed reinsurance funding, will be interesting to see.
With Citizens policy count rising rapidly and the insurer needing to lean on whatever efficient capital sources it can to reduce its PML’s, while remaining well-funded, 2022, with the cat bond market hardening still, could make for an interesting year, to see how the Citizens staff choose to spend their risk transfer budget.
You can read all about Florida Citizens latest catastrophe bond, the Everglades Re II Ltd. (Series 2022-1) transaction, as well as every other cat bond transaction in our extensive Artemis Deal Directory.