Louisiana Citizens Property Insurance Corp. issued $100 million of catastrophe bonds this week via a new shelf bond program, Pelican III Re.
GC Securities, a unit of MMC Securities Corp., served as sole structurer and sole bookrunner.
Catastrophe bonds are a form of reinsurance; they transfer a specific set of risks from their sponsors to investors. If a triggering event occurs in this case, losses from tropical cyclones - the sponsor can stop paying interest or even keep some or all the principal to cover losses.
This is the third time that LA Citizens has tapped the cat bond market to manage its tropical cyclone risks.
The Series 2015-1 Notes replaces maturing catastrophe bonds; they provide three years of risk transfer protection. According to GS Securities, this comes at 56% price reduction to the maturing bonds. The new notes also have improved structural features. For example, the definition of a named storm has been broadened, and there is a “liquidity feature” to advance the next 30 days’ worth of expected claims payments and increased flexibility with respect to the annual reset option.