Investors to demand “Florida premium” for indemnity cat bonds: Sangiorgio, Twelve Capital

Investors are expected to continue to demand a premium for providing capital to support indemnity catastrophe bonds focused on the state of Florida, as despite the reforms this market remains complex, Twelve Capital’s Head of Investment Solutions Vittorio Sangiorgio has said.

While the Florida property insurance market is seen as improving and recent legislative reforms are expected to ultimately drive more capital to support reinsurance for the Florida marketplace, there is still likely to be a premium charged for the cover, Sangiorgio believes.

Sangiorgio said that he believes investors will continue to require additional compensation for Florida cat bonds.

“We expect many Floridian companies to tap the Cat Bond market in 1H2024,” Sangiorgio explained.

He said that the pipeline has already proven strong in 2024, with January seeing a strong number of new catastrophe bond issues, around 60% higher in volume terms than the prior year.

In addition, Sangiorgio said that there is “an attractive pipeline of additional deals currently being assessed,” while returns remain elevated over the levels seen just a couple of years ago, noting “a promising start of the year in terms of cat bond performance,” which is helping to keep the cat bond asset class attractive for investors.

Explaining the Twelve Capital view on the Florida market, Sangiorgio said, “Florida, given hurricane exposure, high insured values and challenging regulatory environment, is an important but complex part of the market.

“Legal reforms and positive loss development from Hurricane Ian should provide tailwind for issuers, but quality of business and underwriting remains heterogeneous and we expect a “Florida premium” for indemnity transactions to persist.”

It will take time for any improvements to the Florida market due to those reforms to really become clear, so for the market to apply any pricing benefit simply because of their enactment is at this stage still premature.

At the same time, given how the level of hurricane risk is particularly high in Florida, while property values exposed to landfalling storms are high and still growing at pace, the Florida market is always likely to be a location where investors demand some kind of a premium for deploying capital to support reinsurance in any form, cat bond or otherwise, over other coastal and hurricane exposed states in the US.