Florida Citizens secures $750m of reinsurance with new Everglades Re cat bond

Florida’s Citizens Property Insurance Corporation has now secured $750 million of named storm reinsurance protection for the 2023 hurricane season with this dual-series issuance of Everglades Re II Ltd. (Series 2023-1 & 2023-2) notes, with the prices fixed within the initial guidance.

It’s slightly below the upper target of $775 million that had been set at the last update, but as Florida Citizens negotiates its reinsurance renewal, the property insurer of last resort for the state balances the economic efficiency of different capital sources and has landed on a $750 million cat bond issuance as the best way to go for the coming wind season, it seems.

Florida Citizens ventured back into the catastrophe bond market in late April, with the initial target set at just $200 million of reinsurance across this dual-series of Everglades Re II Ltd. notes being offered on a zero-coupon discount note basis.

One series of notes on offer will provide reinsurance to cover the Florida Citizens Coastal Account, the other its Personal Lines Account, with both set to provide the named storm reinsurance on an aggregate basis across just a single wind season.

The single wind season term of this issuance is because Florida Citizens is going to merge its three accounts (Coastal Account, Personal Lines Account and Commercial Lines Account) into a single Citizens Account, effectively transitioning its reinsurance structure from three individual towers into a single merged tower for future years.

That should make buying reinsurance and risk transfer more efficient, as the insurer continues to expand its exposure rapidly.

As we reported at the beginning of this week, Florida Citizens target for its new cat bond was raised considerably, with a possibility it could triple in size as $600 million was the upper target, as the official spread range marketed jumped to between $425 million to as much as $600 million.

Then, we reported again that the size target range was lifted further, with between $650 million and $775 million of one-year reinsurance protection sought by Citizens from these catastrophe bonds.

Now, we’re told the notes have now been priced and the Everglades Re II 2023-1 and 2023-2 catastrophe bonds will together provide Florida Citizens with a $750 million source of capital markets backed reinsurance for the coming hurricane and named storm season.

It’s a 275% upsizing from the initial target of $200 million and reflects Citizens appetite to use the most efficient reinsurance available to it, maximising its reinsurance buying power and ensuring it is covering its surplus as effectively as the current hard market allows it to.

The Series 2023-1 Class A notes, that will provide aggregate reinsurance to the Citizens Coastal Account, have been finalised at $300 million in size.

The Series 2023-2 Class A tranche of notes, that will provide aggregate reinsurance to the Citizens Personal Lines Account, were finalised to provide $450 million of protection, we understand.

On the pricing side, the notes have been priced within their initial guidance, we’re told.

The Series 2023-1 Class A notes for the Coastal Account have an initial base expected loss of 1.59%. They were first offered with price guidance in a range from 88.25% to 88.75% of the original principal, but that price guidance was narrowed to 88.50% to 88.75% and then fixed and priced at 88.625% of principal, a roughly 11.375% rate-on-line or coupon equivalent.

The Series 2023-2 Class A notes, for the Personal Lines Account, have an initial base expected loss of 0.92%. They were first offered with price guidance in a range from 89.5% to 90% of the original principal, which later narrowed to 89.75% to 90% and were eventually fixed and priced at 89.875% of principal, a roughly 10.125% rate-on-line or coupon equivalent.

As we reported this week after the Florida Citizens Board meeting, the insurer has been seeing positive momentum around its renewal, reflecting much of the chatter we’re hearing that while reinsurance rates are definitely hard and a step-up from last year, they are perhaps not as hard as some had anticipated they could be.

Florida Citizens CFO said that the positive momentum being seen was especially evident in the capital markets, perhaps underscoring the reason for this large catastrophe bond issuance.

As we said before, this visit to the cat bond market has clearly evidenced the strong support Florida Citizens has in the insurance-linked securities (ILS) market and we expect ILS funds will also play a relatively significant role in the insurers traditional reinsurance arrangements as well this year.

You can read all about these new Everglades Re II Ltd. (Series 2023-1 & 2023-2) catastrophe bonds from Florida’s Citizens Property Insurance Corporation and view details of more than 900 other cat bond issuances in the extensive Artemis Deal Directory.