20 March 2013ILS

Citizens looks to repeat the success of Everglades Re

Florida state-backed insurer, Citizens is looking to repeat the success of its first cat bond issued in 2012, with a second bond issuance under Everglades Re this year.

Everglades Re made headlines in 2012 when it became the largest cat bond ever, growing from a $200 million tranche of notes to $750 million by the close of the deal. Significant interest in the bond helped to buoy the insurance-linked securities market in 2012 and it is likely investors will be considering the latest issuance with interest.

Everglades Re is a Bermuda-domiciled entity, but it is not yet clear whether the new bond will be issued on the Bermuda Stock Exchange.

Arthur Wightman, partner—insurance leader at PwC in Bermuda provided Bermuda:Re with his thoughts on the deal.

How important are deals such as Everglades to the development of critical mass in the Bermuda ILS market?

Given the size of last year's transaction, and the anticipated value of this year's deal, there is no doubt that as a measure of the development of critical mass in the ILS market in Bermuda it is an important deal.

It is important to note, however, that what distinguishes Bermuda from other domiciles is the diversity of the ILS market in Bermuda—from catastrophe bonds to ILWs, from collateralised sidecars to hedge fund-sponsored reinsurance special purpose vehicles, from dedicated ILS investment fund managers to third party capital funds—its intellectual property and speed and quality of innovation, and the platforms available—across its funds and reinsurance industry, its stock exchange and its expert service industry—really set the Island apart.

Obviously every deal is important, but it is significant that deal flow is moving to Bermuda from other domiciles. This really is a sign that Bermuda is the preferred choice for ILS globally.

Is there an expectation that other large state funds will look to the success of Everglades and build similar bonds themselves? What is helping to drive this interest?

Undoubtedly this is something that is being considered. At the SIFMA Insurance and Risk Linked Securities conference in New York last week, many such funds were discussing how their strategies for this year could be optimised. Risk transfer is about creating the best alignment of hedging risk at the right price. A choice between traditional reinsurance and alternative risk transfer and securitisation gives risk managers the ability to make that call.