Florida Citizens targets $950m cat bond issuance, potential to become biggest ever

Citizens Property Insurance Corporation is seeking what could be its biggest catastrophe bond ever, with an initial target of some $950 million of notes offered via a dual-series Everglades Re II Ltd. (Series 2024-1 & 2024-2) issuance, but with both two and three year note series available it looks like market appetite will decide the eventual make-up of the deal.

Florida Citizens is bringing three tranches of three-year cat bond notes and three tranches of two-year notes to this offering, suggesting it will look to maximise investor appetite across the two Series, to secure as much capital markets reinsurance from the deal as it can.

Recall that Florida Citizens is looking to buy its biggest reinsurance program ever for the coming hurricane season.

All six tranches of notes being offered would provide the Floridian property insurer of last resort with annual aggregate named storm reinsurance for the state of Florida, on an indemnity trigger basis, we understand.

The only difference between the three tranches of notes within each of the two Series is the term of coverage, with the Series 2024-1 tranches of notes able to provide Citizens three years of Florida named storm reinsurance, while the Series 2024-2 tranches of notes would provide two years of protection to the residual market insurer.

The dual-series of notes are all being issued by Bermuda based Everglades Re II Ltd. and have significant room for upsizing, due to the way the deal is structured. Remember, that Florida Citizens holds the record for the largest cat bond deal to-date, at $1.5 billion issued back in 2014.

So this latest Everglades Re certainly has the potential to eclipse that and set a new record, should the response from the catastrophe bond market prove positive and investor appetite sufficient to elevate the issuance to above that level.

Here, we’ll detail the metrics for only the three tranches of Series 2024-1 notes, as the figures are understood to be the same across the Series 2024-2 tranches, with only the tenure different (Series 2024-1 being three-year term notes, Series 2024-2 being two year notes).

A $150 million Class A tranche of notes would attach their coverage at $13.3 billion of losses and exhaust at $15.3 billion, giving them an attachment probability of 1.34%, a base expected loss of 1.24% and these are being offered with price guidance in a range from 9.5% to 10.25%, we are told.

A $150 million Class B tranche of notes would attach their coverage at $11.3 billion of losses and exhaust at $13.3 billion, giving them an attachment probability of 1.74%, a base expected loss of 1.51% and these are being offered with price guidance in a range from 10.5% to 11.25%.

Finally, a $125 million Class C tranche of notes would attach their coverage at $9.8 billion of losses and exhaust at $11.3 billion, giving them an attachment probability of 2.06%, a base expected loss of 1.91% and these are being offered with price guidance in a range from 11.5% to 12.25%.

As said, the 2024-1 Class A, B and C notes will all have three-year terms, while 2024-2 Class A, B and C have the same risk metrics, attachment points and price guidance, but will only provide two-years of reinsurance protection.

Meaning that, across all six tranches on offer, $950 million of notes are initially available to investors, with ample room to upsize all if investors are receptive given the significant reinsurance purchases Citizens needs to make this year.

This should test the cat bond market’s appetite for Florida wind risk and it will be interesting to see where the appetite flows to and which tranches grow, shrink, or perhaps even get dropped from the issuance.

You would imagine that, if the appetite for the three-year notes is most significant, it’s most likely we would see the two year notes declining.

But, having both durations on offer still makes a lot of sense, as it will allow Florida Citizens to stagger its reinsurance renewals in future, which could be especially important if this latest Everglades Re catastrophe bond upsized significantly.

Having staggered maturities will make for easier renewals going forwards and Citizens will also be thinking that its reinsurance needs could shrink over time, if the depopulation and so re-privatisation of its policies continues apace.

Remember that Florida Citizens has a single reinsurance tower for 2024, having merged its Accounts into one for this year.

As a result, this deal looks set to make the catastrophe bond market a significant component of Florida Citizens reinsurance program for this year, while delivering it flexibility for renewals in the future across the two tenures of notes being offered.

You can read all about these new Everglades Re II Ltd. (Series 2024-1 & 2024-2) catastrophe bonds being sponsored by Florida’s Citizens Property Insurance Corporation and view details of more than 900 other cat bond issuances in the extensive Artemis Deal Directory.