Nephila & D.E. Shaw lead Florida Citizens renewal, as ILS dominates again

Once again, third-party sources of reinsurance capital, largely from the insurance-linked securities (ILS) market, have dominated the reinsurance renewal of Florida’s Citizens Property Insurance Corporation in 2022, with ILS investment manager Nephila Capital again taking the largest share.

Florida Citizens had entered the reinsurance renewal marketplace in 2022 seeking to buy anywhere up to $3.64 billion of new risk transfer and reinsurance from across the catastrophe bond and traditional reinsurance market.

If successful, when added to in-force multi-year cat bonds and reinsurance, that meant Florida Citizens would have had a roughly $4.7 billion program in place for the 2022 hurricane season.

As we explained recently, only $1.25 billion of the new risk transfer capacity Citizens was seeking had been secured a few weeks back.

Challenging reinsurance market conditions and sky-rocketing reinsurance pricing meant that Florida Citizens had to dial back its appetite for protection and has ended in the insurer of last resort for the state only securing a bit less than the $1.25 billion in traditional reinsurance, from reinsurer and ILS fund markets.

Added to which, Florida Citizens has $1.26 billion of catastrophe bond coverage still in-force, across its Coastal and Personal Lines Accounts, including the $200 million of capital markets backed reinsurance through its most recent PLA focused catastrophe bond issuance.

So, it’s far from the result Florida Citizens had been targeting and means a significant amount more in risk will be uncovered, potentially raising the risks of assessments ultimately falling to taxpayers, while the insurer of last resort may also look to other forms of financing to boost its capital levels, we’d imagine.

But, support from many ILS and reinsurance markets remained strong, in particular from the insurance-linked securities (ILS) market and collateralized reinsurance writers.

Nephila Capital is again the largest writer of risk from the Florida Citizens program, taking $450 million of the shrunken program.

That’s down on the $600 million line Nephila wrote for Citizens program in 2021, but proportionally it seems the ILS fund manager has taken a greater percentage of the program in 2022, given its shrinkage.

D. E. Shaw comes next, having underwritten $325 million of the total limit secured by Citizens, up significantly from the $170 million it wrote on the program renewal last year.

Next, in terms of share of the Florida Citizens traditional reinsurance renewal, was Munich Re, which underwrote an almost $125 million line.

Swiss Re then took just over $90 million, followed by Ariel Re at almost $37.9 million, Everest Re at $51.5 million and Odyssey Re at just under $26.9 million.

But insurance-linked securities (ILS) and collateralized reinsurance markets also took reasonable sized shares, including Pillar Capital which wrote just over $29 million of the renewal program for Citizens.

Other ILS writers included Credit Suisse, writing $5 million through its Bernina Re reinsurance vehicle, AlphaCat writing almost $20 million through its OmegaCat Re vehicle and investor Quantedge fronted by Arch.

A notable decline in terms of how large its line was, came from ILS investment manager LGT ILS Partners, whose Lumen Re rated reinsurer only underwrote $10 million of the program in 2022, down from just over $59.5 million of limit last year.

LGT has adjusted its appetite for Florida property catastrophe exposure this year, so this smaller line size was to be expected.

There are also some notable ILS names missing, who did participate last year, such as Fermat Capital Management, Leadenhall Capital Partners and Securis Investment Partners.

On the traditional side, perhaps surprisingly there is no sign of RenaissanceRe in this year’s Florida Citizens renewal, either on its own balance-sheet or through any of its third-party managed capital structures.

But, the ILS market has dominated Florida Citizens reinsurance needs for 2022 again, through its $1.26 billion of still in-force catastrophe bonds and these significant collateralized reinsurance lines from major ILS market players.

In fact, on the catastrophe bond side, Florida Citizens actually increased the amount of reinsurance it has from that market, having only had just $1.06 billion of cat bond backed reinsurance in-force for the 2021 wind season.

On the traditional renewal of almost $1.25 billion of reinsurance limit, over $520 million is from those we’d identify as ILS fund managers, with the additional $325 million in collateralized limit from hedge fund D. E. Shaw, which makes over $845 million of the tower from ILS and collateralized limit, so clearly dominating this renewal once again.