Cat Citrus Re 2017-1 bond price forecast drops due to investor demand


The coupon price forecast for the recently launched $ 125 million catastrophe bond Citrus Re Ltd. (series 2017-1) have been lowered considerably, as investor demand for cat bond investments is expected to offer sponsors very attractive terms.

Heritage Property & Casualty Insurance Company is sponsoring its fifth catastrophe bond issue named Citrus Re with the deal launched in February.

Citrus Re 2017-1 will provide Heritage with a multi-year source of fully guaranteed reinsurance protection against named storm risks in the United States, initially in the four main states where Heritage operates, Florida, Georgia, South Carolina and North Carolina.

With a risk period of three years, the Citrus Re 2017-1 Notes will provide sponsor Heritage with capital market backed reinsurance coverage on an event and compensation trigger basis.

The one-time $ 125 million Class A tranche of the Citrus Re Series 2017-1 Notes has an attachment point of $ 40 million, covering losses up to a depletion point of $ 165 million. These notes have a modeled attachment probability of 5.33% and an expected loss of 3.08%.

At launch, these notes offered investors a coupon somewhere in a forecast range of 6.5% to 7.25%, which would have been a fairly typical multiple even at the lowest and price forecast, around 2.11. times the expected loss.

But now we understand that Heritage could benefit from even more attractive pricing, as the benchmark coupon range has been lowered below the original range, with these tickets now offered with a 6% price orientation to 6. , 5%.

So that means the multiple could be lower, unless they are now at the high end of the benchmark range.

Cat bond investors are keen to see more issuance as the market has leveled off a bit in recent years. Significant capital is available to support the new risk of cat bonds in the market, and as investors become increasingly familiar and confident with the track record of sponsors, this means that attractive pricing can be achieved (relative to traditional reinsurance).

Perhaps it makes sense that Heritage has entered the market with a smaller deal with no possibility of an increase now, as it offers the sponsor a way to test the appetite of the market, which based on this reduction in price, seems to be strong. It will be interesting to see if Heritage will come back with another tranche of tickets if this transaction ends at a particularly low multiple.

For other potential sponsors who are studying the catastrophe bond market, this should indicate that there is currently an opportunity to secure reinsurance and retrocession at very attractive prices in the catastrophe bond market.

Swiss Re recently said that 2017 could be the year of the cat bond. If price multiples in the market continue to decline, as we’ve been tracking since 1997 here, that may well turn out to be true, offering a chance for existing sponsors to come back and increase their cat bond coverage, or new sponsors. to try to get out of that market.

This Citrus Re Ltd. (Series 2017-1) is expected to end around mid-March, with final prices expected next week, from what we understand. We will keep you posted.

You can read all about this and all other catastrophe bond deals in the Artemis Deal Directory.


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