Florida Citizens sets up to $1.25bn target for new Everglades catastrophe bond

Citizens Property Insurance Corporation has increased the targeted amount of reinsurance it is seeking from its latest catastrophe bond to as much as $1.25 billion, while at the same time focusing on securing three-years of coverage across the transaction, with one series of notes now dropped and only the Everglades Re II Ltd. (Series 2024-1) notes now being issued.

Florida Citizens has opted to secure only three year protection from this catastrophe bond issuance, as the Series 2024-2 notes that would have provided the insurer of last resort a source of two-year reinsurance protection have been withdrawn and will now not be issued, Artemis understands.

Despite that, this Everglades Re II 2024-1 issuance is still set to be one of the largest cat bonds ever sponsored, with the top-end size for the deal now lifted to target up to $1.25 billion of reinsurance protection.

This issuance was first marketed back in April, with Citizens targeting a dual-series issuance, one of two-year and one of three-year notes, and an initial target to secure $850 million of fully-collateralized reinsurance.

Florida Citizens is looking to buy its biggest reinsurance program ever for the coming 2024 hurricane season and it appears catastrophe bonds will continue to play a very significant role for the insurer.

Now, with the two-year series dropped, the three-year 2024-1 notes are being aimed at between $950 million and $1.25 billion in offering size.

The Series 2024-1 notes will provide the Floridian property insurer of last resort with a significant source of annual aggregate named storm reinsurance for losses in the state of Florida, on an indemnity trigger basis.

Everglades Re II Ltd. will issue three tranches of Series 2024-1 notes, each to collateralize a three-year source of reinsurance.

What was a $150 million Class A tranche of notes with a base expected loss of 1.24% are now targeted at between $350 million and $450 million in size, we are told.

The Class A notes were initially offered with price guidance in a range from 9.5% to 10.25%, but we’re now told that has risen to updated guidance fixed at 10.5%.

What was a $150 million Class B tranche of notes with a base expected loss of 1.51% are now also targeted at between $350 million and $450 million in size, we understand.

The Class B notes were initially offered with price guidance in a range from 10.5% to 11.25%, but we’re now told have also seen their guidance rise and get fixed at 11.5%.

The final Class C tranche were initially targeted at $125 million in size with a base expected loss of 1.91% and are now targeting an increase to between $250 million and $350 million, sources told us.

The Class C notes were initially offered with price guidance in a range from 11.5% to 12.25%, but have also seen their price guidance rise and be fixed at 12.75%.

So, it looks like Florida Citizens is set to secure more reinsurance than initially targeted, all on a three-year term basis, but at higher pricing than the initial guidance for each tranche of notes on offer.

We are also told that an optional redemption premium has been included in the deal terms, which would enable Citizens to redeem some or all of the notes, should its total insured values (TIV) fall below pre-defined levels.

That gives the insurer of last resort some flexibility with this cover and means it can redeem notes and cancel reinsurance coverage should its de-risking, through the depopulation program, continue at a pace that makes the level of reinsurance this catastrophe bond will provide less relevant or appropriate to sustain through the entire three-year term.

Which is encouraging. As, while cat bond investors are demonstrating their return requirements and need for higher pricing, they are also offering some flexibility and so Citizens is still looking to secure a significant up to $1.25 billion of protection from its latest catastrophe bond.

You can read all about this new Everglades Re II Ltd. (Series 2024-1) catastrophe bond being sponsored by Florida’s Citizens Property Insurance Corporation and view details of more than 1,000 other cat bond issuances in the extensive Artemis Deal Directory.