Florida's state-backed insurer Citizens is planning to re-enter the cat bond market in 2013 with an additional $250mn placement, after making its debut this year with the $750mn Everglades Re transaction.
The residual insurer is also looking to restructure its traditional reinsurance placement as it aims to realign its risk transfer towards surplus protection.
Citizens is projecting $6bn of policyholders' surplus at the end of 2012.
Speaking at Trading Risk's annual Rendez-Vous in New York last week (18 October), Citizens CFO Sharon Binnun said the insurer's initial focus on risk transfer had targeted the point at which surplus and reimbursements from the Florida Hurricane Catastrophe Fund are exhausted.
The strategy was largely in place for financial reasons, because reinsurance is less costly higher up and Citizens is limited in its ability to pass risk transfer costs into policyholder rates - which are "largely inadequate".
"But for 2013 I'd like to focus a little more on surplus protection rather than waiting for everything to be gone and starting at zero," she told the audience of almost 200 convergence market executives attending the conference.
Consequently, Binnun said she was considering shifting the $500mn traditional open market reinsurance limit bought this year from its current position above the Everglades Re protection and $250mn private placement.
"I'd like to take that and drop it down alongside the cat fund so I can have more surplus left after a big storm. I'm hopeful that the strides we've made in the last year will make capacity available to us at pricing that makes sense," she said.
In addition, Binnun said that the insurer would go back into the cat bond market and look to buy $250mn of cover that would sit where the traditional $500mn layer currently attaches, potentially with a three-year placement.
The Everglades Re cat bond and private placement are two-year deals that provide cover for the 2013-2014 year.
"We'll have $1bn of protection starting 2013 if I do absolutely nothing. If we do a $250mn cat bond and maybe buy $500mn of traditional alongside that it would put us in a really good position for the upcoming season," she said.
At $750mn, Everglades Re significantly upscaled from a transaction size initially planned at $250mn, amid a wave of investor demand.
The cat bond was part of a $1.5bn risk transfer, which also included a $250mn private placement and a $500mn traditional open market reinsurance cover.
The cat bond attached at $6.35bn in a $1bn layer of cover with the private placement, with the traditional open market layer sitting above an attachment point of $1bn.
Everglades Re is the largest single-tranche cat bond to be placed in the market, with the two-year indemnity deal receiving a B+ rating from Standard & Poor's.
Pricing for the Goldman Sachs-placed transaction, which was taken up by a total of 32 investors, saw the bond pay an insurance-related coupon of 17.75 percent.