Florida Citizens completes early redemption of final separate account cat bond

Florida’s Citizens Property Insurance Corporation now only has catastrophe bonds in-force that occupy layers of its newly-combined single account reinsurance tower, after the last Everglades Re cat bond that provided coverage solely for the old Personal Lines Account has been redeemed.

Florida Citizens merged what were its three so-called accounts (the Coastal Account, Personal Lines Account and Commercial Lines Account) into which it segmented the policy business that it underwrote, into a single Citizens Account, effectively transitioning its reinsurance structure from three towers into a single all-encompassing one.

It was seen as a set that could make reinsurance buying more efficient for Citizens, while also preparing it for a smaller portfolio, as the depopulation program was and still is expected to pick-up pace again.

The first reinsurance renewal the insurer of last resort has faced with this merged, single reinsurance tower structure in place, was this year in 2024 and so Citizens had planned its exit from legacy reinsurance arrangements that would not provide relevant coverage any more.

Which meant that an early redemption was needed, to cancel the coverage from an Everglades Re II Ltd. (Series 2022-1) cat bond as it no longer fits the new single reinsurance tower structure.

When that cat bond was originally issued, the terms had an optional redemption baked in for May 15th 2024, with a 1% of outstanding principal premium needing to be paid. It’s not clear what terms this redemption was effected at, but that seems a likely ballpark given it was documented as such.

That early redemption has now been completed and the Everglades Re 2022-1 notes have been cancelled and redeemed in full.

Now, with that cat bond redeemed, Florida Citizens has $1.6 billion of catastrophe bond backed reinsurance in-force.

That puts the insurer in sixth place currently in our catastrophe bond sponsor leaderboard.

The $1.6 billion of cat bond protection is derived from the $500 million Lightning Re Ltd. (Series 2023-1) industry-loss trigger cat bond, that Citizens purchased as a way to span the change from multi-accounts, to the single account and reinsurance tower it has today.

While the Lightning Re cat bond is not scheduled for maturity until the end of March 2026, there is a chance that could come up for redemption in future as well.

Now that the single reinsurance tower is in-place, it might be preferred at Florida Citizens to transition back to indemnity triggered catastrophe bonds for that slice of its reinsurance protection as well, especially if the policy count continues to fall.

The Lightning Re cat bond does have optional redemption dates in its terms, for April 2024 and 2025. With the first date now passed, Citizens will have an option to redeem its industry-loss cat bond next year.

The remainder of Florida Citizens in-force cat bond coverage comes from this year’s $1.1 billion Everglades Re II Ltd. (Series 2024-1) issuance.

That cat bond provides Citizens three years of reinsurance on an indemnity and annual aggregate basis, so can be more tightly calibrated alongside its traditional reinsurance arrangements.

For the 2024 hurricane season, Florida Citizens will have a targeted $5.5 billion of protection from reinsurance and catastrophe bonds in-place.

Cat bonds have shrunk as a percentage of the overall Citizens reinsurance tower in recent years, but this has been largely driven by the change to the single account and tower and we suspect cat bonds could rebuild in importance for Citizens in future years.