Florida Citizens sponsoring $200m Lightning Re industry loss cat bond

Florida’s Citizens Property Insurance Corporation is back in the catastrophe bond market and for the first time the residual market insurer for the state is seeking reinsurance on an industry loss trigger basis, with a $200 million target for this Lightning Re Ltd. (Series 2023-1) issuance.

This will be the tenth full 144a catastrophe bond issuance from Florida’s Citizens Property Insurance Corporation since its entry to the cat bond market back in 2012.

All of the previous cat bonds have been issued under an Everglades Re named structure, while Florida Citizens has also benefited from privately placed cat bonds as well, one of which is included in the Artemis Deal Directory, so making this new Lightning Re 2023-1 cat bond the eleventh from Citizens Property Insurance that we have listed.

Given Florida Citizens broad exposure across the state of Florida and the fact it has such a large portfolio of policies , the residual market insurer is exposed to any major hurricanes that strike the state, meaning an industry loss index trigger can provide a valuable alternative type of reinsurance protection for it.

In fact, given Florida Citizens growth in terms of policies and the fact that its exposure in the state is expected to continue growing this year, an industry loss index trigger can provide a useful way to approximate the impacts it might suffer from a major named storm or hurricane and so a viable way to activate reinsurance cover for the insurer.

Florida Citizens has established a new Bermuda based vehicle named Lightning Re Ltd. that will be licensed as a special purpose insurer (SPI) for the issuance of catastrophe bonds.

For its first transaction, Lightning Re Ltd. will issue a single $200 million or larger tranche of Series 2023-1 Class A notes that will be sold to investors and the proceeds used to collateralize a reinsurance agreement between the vehicle and Citizens Property Insurance Corporation.

The $200 million or more in capital markets backed reinsurance protection will be afforded on a PCS industry loss index and annual aggregate trigger basis, we’re told.

We understand the index will only be based on personal lines losses from named storms in the state of Florida and that the Lightning Re 2023-1 cat bond will provide Citizens with protection across a three-year term to the end of March 2026.

Sources said that the index attachment point will be $51.5 billion of aggregate losses, while the cat bond would exhaust its coverage at an index value of $66 billion, with a $2 billion per-event franchise deductible will be in effect.

As a result, the $200 million of Series 2023-1 Class A notes that Lightning Re Ltd. will issue come with an initial attachment probability of 2.18% and an initial expected loss of 1.8%

We understand the notes are being offered to cat bond funds and investors with price guidance in a range from 11.5% to 12.5%.

As this is the first industry loss trigger cat bond from Florida Citizens and there aren’t any other Florida named storm only industry loss cat bonds to compare it to, this being the first such deal in 144a cat bond format, it’s hard to see how the pricing might look against previous deals.

However, if we compare it to a Class A tranche of notes from Citizens Everglades Re II 2020-2 deal, that had a 1.93% expected loss, they priced at 6.25%, which makes this look like comparably much harder pricing, as you might expect.

As we reported recently, Florida Citizens expects to grow its policy count by around 46% during 2023, to reach roughly 1.7 million policies in-force by the end of the year, while its exposure could rise by 55%.

As a result, the insurer will need significantly more financial resources, including reinsurance. So entering the market with the first Florida named storm index cat bond makes a lot of sense at this time, providing a complimentary source of capital markets protection.

You can read all about this new Lightning Re Ltd. (Series 2023-1) catastrophe bond sponsored by Florida’s Citizens Property Insurance Corporation and view details of more than 900 cat bonds in the extensive Artemis Deal Directory.