Florida Citizens budget for 2024 cat bonds & reinsurance lifts to $750m max

Florida’s Citizens Property Insurance Corporation, the insurer of last resort that is currently in the catastrophe bond market with a new issuance that could approach $1.25 billion in size, is set to increase its budget for reinsurance and risk transfer spend for 2024 to a maximum of $750 million.

Florida Citizens is the residual market property insurance carrier for the state and buys one of the largest catastrophe reinsurance towers in the US.

For 2024, Florida Citizens is looking to buy its biggest reinsurance program ever for the coming 2024 hurricane season with a target to secure $5.5 billion of protection from reinsurance and capital markets.

With the reinsurance market hard and pricing remaining high for buyers of catastrophe risk protection, Florida Citizens budget to secure the program has now been increased to a $750 million maximum.

Back in December, when we had covered a Citizens budget meeting, the insurer was aiming to secure the necessary up to $5.5 billion in risk transfer for a budget that topped-out at $700 million.

At that time it was above a projection for where the reinsurance and risk transfer spend in premium terms for full-year 2023 was expected to be, which was estimated at $695.2 million.

That was to purchase $4.2 billion in protection across last year though, so with the amount of risk transfer required up significantly to $5.5 billion, the increase to a forecast for up to $700 million to be spent was not surprising.

That $700 million figure was still being cited at an April meeting of Florida Citizens Board. But now, we understand, the placeholder figure has risen and is being cited for spend for 2024’s risk transfer to reach up to a maximum of $750 million.

Quite where the increased cost-expectation has come from is uncertain, it may just be market conditions or a realisation that the previous budget was going to prove insufficient.

But, with an industry-loss trigger cat bond to reset, in the $500m Lightning Re deal that runs for another couple of years, that could have been a slight contributor given the way spreads have moved on those index-trigger cat bonds in recent weeks, as we reported earlier today.

Of course, Florida Citizens reinsurance purchasing for 2024 is already well-underway, with an up to $1.25 billion catastrophe bond in the market alongside a traditional reinsurance renewal that is making progress.

With a budget for up to $750 million now being requested by staff, it will be expected to prove sufficient to secure the total $5.5 billion reinsurance purchase for 2024, which will come in two main layers.

The Florida Citizens program will feature a sliver layer that sits alongside its FHCF coverage, which will provide approximately $630 million of per-occurrence one-year cover, in excess of at attachment point of $3.5 billion, to cover personal residential and commercial residential losses.

This sliver layer will be placed in the traditional reinsurance market and is designed to work alongside the mandatory coverage provided by the FHCF.

In a layer above that, will sit the majority of Florida Citizens private market risk transfer and reinsurance (roughly $4.9 billion worth), attaching at $9.8 billion of losses and extending to $16.7 billion, with reinsurance, catastrophe bonds and surplus all set to work together in this layer.

It is this layer that the new up to $1.25 billion of Everglades Re II Series 2024-1 catastrophe bond tranches will sit within, to provide a significant chunk of the reinsurance needed.

Older Everglades cat bond tranches, that were structured when Citizens had multiple accounts, will be matured this year.

In addition, also within that main layer of the 2024 Citizens reinsurance tower, the residual market insurer will reset its industry-loss triggered Lightning Re Ltd. (Series 2023-1) catastrophe bond for the coming year.

You can see the Florida Citizens 2024 reinsurance tower structure below:

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