Florida Citizens likely to sponsor new indemnity cat bond pre-hurricane season

Florida’s residual market insurer, Citizens Property Insurance Corporation, appears likely to return to the catastrophe bond market before the 2023 hurricane season begins, to access indemnity reinsurance protection, as well as its currently in the market and first ever industry-loss trigger cat bond Lightning Re.

Florida Citizens is already in the market for a $400 million to $500 million Lightning Re Ltd. (Series 2023-1) issuance, which will be the first catastrophe bond from the insurer to feature an industry-loss trigger.

Florida Citizens is targeting just under $5.84 billion of private market reinsurance for 2023, including a range of still in-force catastrophe bonds and the Lightning Re cover.

As we’ve been reporting, the cat bond investor market has been receptive to Citizens latest deal, with the Lightning Re deal launched in February targeting just $200 million of cover, but investor appetite helping the target grow to as much as $500 million.

Now, Florida Citizens has disclosed some detail on why it is looking to an industry-loss cat bond to provide reinsurance cover.

Because of Senate Bill 2-A, which passed during the special legislative session in December of 2022 and became effective shortly after, Citizens will be merging its three accounts (Coastal Account, Personal Lines Account and Commercial Lines Account) into a single Citizens Account.

This will effectively mean a single reinsurance tower will be in-force, featuring all of Citizens property insurance risks.

The insurer said this will, “Enhance Citizens’ ability to pay claims for future storms and minimize the potential for assessments. Currently, Citizens intends to make this transition no earlier than January 2024.”

As this means Citizens will go through the 2023 hurricane season with its separate Accounts and therefore reinsurance towers in force, the insurer has looked to buy a multi-year protection that can be relevant across both Account structures, hence the industry-loss triggered Lightning Re catastrophe bond.

As we’ve explained before, the significant exposure Citizens has across Florida means it will be exposed to any major storm loss, hence a PCS industry trigger is a viable risk transfer tool for the insurer.

Also, an industry loss trigger is not tied to the direct loss of any single Citizens account, making it suited to this transitional period for the insurer.

Citizens staff were set to seek approval for the Lightning Re cat bond at a meeting yesterday, but that Board meeting was in the end cancelled.

However, we understand that Lightning Re is just the first move to secure the necessary reinsurance Florida Citizens needs for 2023.

In fact, Citizens needs to buy over $4.6 billion of reinsurance and cat bonds this year, to hit its goal of $5.8 billion of private market risk transfer, with $1.15 billion of catastrophe bonds still in-force from prior year Everglades Re issuances.

The second-phase of Citizens reinsurance renewals for 2023, will see the insurer looking for a mix of traditional reinsurance and also potentially more capital markets cover, but all on an indemnity basis.

These will likely be arranged and readied during April and May, so they can be approved before a Board meeting in early May and secured well in advance of the June 1st renewal date.

So it seems likely we will see Florida Citizens back with a new Everglades indemnity trigger catastrophe bond in 2023 as well, although the terms of the reset feature could be even more critical than normal, as any multi-year cat bond will need to fit just as well into its multiple Account towers, as it will in the single Citizens Account that is inn place for 2024 and beyond.

The cat bond reset feature could prove particularly valuable in 2023/24 for Florida Citizens, as with the right terms a multi-year cover purchased this year, could run into the next and protect the new single Citizens Account just as effectively as it does the Coastal or PLA Accounts this year.

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