Everglades Re Ltd. Series 2014-I Senior Secured Notes. Determining The Nat-Cat Risk Factor. Principal and Interest Payments on the Notes

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1 Presale: Everglades Re Ltd. Primary Credit Analyst: Gary Martucci, New York (1) ; Secondary Contact: Robert A Chiriani, New York (1) ; robert.chiriani@standardandpoors.com Table Of Contents Series 2014-I Senior Secured Notes Profile Rationale Determining The Nat-Cat Risk Factor Reinsurance Trust Account Ceding Insurer Surveillance Transaction Structure Transaction Summary Catastrophe Exposure Loss Calculation Principal and Interest Payments on the Notes Related Criteria And Research APRIL 7,

2 Presale: Everglades Re Ltd. Series 2014-I Senior Secured Notes This presale report is based on information as of April 7, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Final ratings will depend upon receipt and satisfactory review of all final transaction documentation, including legal opinions. Accordingly, the preliminary ratings should not be construed as evidence of final ratings. If Standard & Poor's does not receive final documentation within a reasonable time frame, or if final documentation departs from materials reviewed, Standard & Poor's reserves the right to withdraw or revise its ratings. Profile Preliminary rating series Amount (mil. $) Interest (to scheduled redemption date) B(sf) [400] U.S. money market fund yield plus [ ]% Expected term (years) Expected scheduled redemption date Expected final redemption date 3 April [28], 2017 April [28], 2020 Issuer Ceding insurer Underwriter/sole structuring agent and bookrunner Joint bookrunner Financial advisor to ceding insurer Modelling agent and reset agent Indenture trustee and reinsurance trustee Offshore special-purpose vehicle administrator Claims reviewer and auditor Loss reserve specialist Escrow agent Everglades Re Ltd. Citizens Property Insurance Corp. Citigroup Global Markets Inc. Merrill Lynch Pierce Fenner & Smith Inc. Raymond James & Assocs. Inc. AIR Worldwide Corp. Deutsche Bank Trust Co. Americas Horseshoe Management Ltd. KPMG Audit Ltd. Ernst & Young Ltd. InnovaSafe Inc. Institution/role U.S. money market funds (assets in reinsurance trust accts.) Supporting ratings 'AAAm' Transaction Features Expected closing date May [ ], 2014 Initial principal balance $[400] million class A notes Country of origination Bermuda APRIL 7,

3 Transaction Features (cont.) Offering type Purpose 144A offering Total Insured Value By Policy Type Commercial residential Personal residential Indemnified risk transfer via a reinsurance agreement on an annual aggregate basis over a three-year risk period to Citizens Property Insurance Corp. Rationale Standard & Poor's Ratings Services has assigned its 'B(sf)' preliminary rating to the series 2014-I notes to be issued by Everglades Re Ltd. The notes cover losses in Florida from hurricanes on an annual aggregate basis, unlike the company's first two issuances which were per-occurrence notes. The preliminary rating is based on the lowest of the natural catastrophe (nat-cat) risk ('B'), the rating on the assets in the reinsurance trust account ('AAAm'), and the creditworthiness of the ceding insurer. We do not maintain an interactive rating on the cedent, but we currently rate its bonds 'A+'. Determining The Nat-Cat Risk Factor We derived the 'B' nat-cat risk factor from Version of the AIR Hurricane Model for the U.S. as implemented in Touchstone and CATRADER ) probability of attachment on Citizens Property Insurance Corp's. (Citizens) exposures as of Dec. 31, This model will be held in escrow and used for each annual reset. The probability of attachment, expected loss, and probability of exhaustion are 2.89%, 2.30%, and 1.72%, respectively. When rating catastrophe bonds linked to hurricanes, we review the sensitivity analysis. This is the warm sea-surface temperature-conditioned (WSST) catalogue, which incorporates the impact of elevated ocean surface temperatures in the North Atlantic (as has generally been the case since 1995) on hurricane activity. AIR uses the WSST catalogue to generate a stochastic event set to compare with their long-term base-case analysis; this usually results in more-conservative results. The WSST probability of attachments, expected loss, and probability of exhaustion are 3.34%, 2.68%, and 2.02%, respectively. Series contains a variable reset provision. The probability of attachment post reset ranges between 2.74% and 3.04%. The preliminary rating assumes the attachment level will reset to an amount consistent with the probability of attachment, 3.04%, which equals a WSST probability of attachment (3.48%). To assign the nat-cat risk factor, we applied an adjustment to the WSST results to reflect the possibility of the attachment possibly being greater than the model had anticipated. We then select the next rating category below this adjusted probability of default that is greater than or equal to the adjusted probability of attachment that is greater than or equal to the adjusted probability of attachment from our nat-cat risk factor table. This adjustment results in varying margins between the initial parameter values needed to trigger a payment from the noteholders to the issuer and the parameter values at the probability of attachment commensurate with the assigned preliminary rating. APRIL 7,

4 AIR's modelling of estimated net loss includes 10% of separately modelled storm surge loss based on AIR's assumption as to the amount of water damage that would be indistinguishable from wind damage claims. In adjusting the modelled probability of loss we considered the following strengths, concerns, and mitigating factors. Strengths: Data for U.S. hurricane has been collected for many years; this is one of the main perils covered by natural peril catastrophe bonds. Regardless of whether or not funds are received, all sources of reinsurance up to and including the attachment level are assumed to be paid. Concerns: Potential uncertainty in the modeled results is high because modeling for an indemnified transaction uses all modules within the catastrophe model, not just those associated with generating the hazard at each location. Since the notes cover losses on an annual aggregate basis, losses from multiple smaller events can result in a triggering event. There is no minimum ultimate net loss from an event and no franchise deductible. Citizens will not be required to retain any portion of the covered layer. The composition of insured properties can change over time and Citizens has to take all policies that meet their guidelines. The growth-limitation factor is linked to policy count, which can result in a significant shift in risk exposure. There is investment risk regarding the assets held in the collateral accounts. Mitigating factors: We stressed the transaction's occurrence exceedance probability curve in line with the strengths and weaknesses we have identified. Based on AIR's analysis, on a historical basis since 1900, there have been two years when two unnamed storms made landfall in Florida and 1992's Hurricane Andrew--that would have resulted in a loss to noteholders. The 1926 storms would have resulted in a full loss of principal on the notes, and there would have been a 75% loss of principal from Hurricane Andrew. The next three most damaging event years were 1947 (one unnamed storm) with $4.85 billion in estimated losses, 1928 (one unnamed storm) with $4.08 billion, and 1965 (Hurricane Betsy) with $2.82 billion. Based on the WSST catalogue, there are 334 simulated years in which the attachment point is reached. Of those years, the attachment level is reached by one event 183 times, by two events 105 times, and 46 times by three or more events. Of the 151 simulated years when two or more events reached the attachment level, 13 years saw none of their individual event losses exceed 75% ($3.901 billion) of the attachment level. Citizens retains a significant amount of exposure below the ceded covered layer. Its capital structure (see Ceding Insurer section below) could force them to levy assessments to policy holders and insurance companies. Citizens has an announced policy of "depopulating" and transferring exposures back to the traditional insurance market. Since 2011, it has reduced the total insured value in its coastal account by $60 billion and it expects to continue to decrease its exposure in this account. At closing, only 'AAAm' rated Treasury money-market funds will be permitted in the collateral account. APRIL 7,

5 Reinsurance Trust Account Everglades Re will deposit the proceeds from the sale of the notes into a reinsurance trust account, and the indenture trustee will transfer these amounts to one or more Treasury money-market funds that we rate at least 'AAAm' (the investment guidelines require the money-market funds to be rated by us) After the initial purchase of 'AAAm' funds, there is no requirement for the funds to be rated 'AAAm', though the expectation is that the proceeds will remain in funds rated 'AAAm' to the extent available. If these funds are not available, they will remain uninvested and held in cash. Our principal stability fund rating, also known as a money-market fund rating, is a forward-looking opinion about a fixed-income fund's capacity to maintain principal stability and to limit exposure to principal losses stemming from credit risk. Investors should know the fee structure of a money-market fund, particularly its total expense ratio, since this affects the fund's net yield. If net yield causes the marked-to-market net asset value (NAV) per share of a rated money-market fund to deviate outside specified ranges (plus or minus 0.25% for a fund rated 'AAAm'),then we would take a rating action on the fund's principal stability fund rating. Moreover, if the related trust assets were to earn a net negative yield, Everglades Re might not necessarily redeem the notes in full at maturity, and we would revise the rating to 'D'. Noteholders will bear the risk of any loss of principal on the Treasury money-market funds, and there is no recourse to either Everglades Re or the ceding insurer. Ceding Insurer The issue credit rating on bonds issued by Citizens (A+/Stable) reflects our assessment of the ongoing state oversight and support for Citizens from Florida's governor, chief financial officer, and legislature; the strength of Florida's economy, which we believe continues to have healthy long-term growth prospects despite a severe and prolonged recession; Citizens' broad, statewide assessment authority, coupled with a strong collection mechanism granted pursuant to Florida statute to cure any operating deficits; and the broad pledge of Citizens' revenues, including the requirement to implement emergency assessments in a timely manner to meet annual debt service requirements. Citizens' credit profile reflects certain risks: its ability and willingness to support potentially high annual assessments from all statutory entities authorized to collect in Florida (this was tested in a limited way several years ago); sensitivity to insurance rates and charges throughout Florida; and the risk exposure of both Citizens and the Florida Hurricane Catastrophe Fund (FHCF). These risks could translate into increased debt issuance and assessments if hurricane and storm activity became frequent and severe. APRIL 7,

6 1 Surveillance We will use surveillance data provided by the various transaction parties to perform periodic reviews. Our rating reflects our opinion of the transaction's ongoing risk profile. We will undertake a number of steps to determine whether the assigned rating continues to reflect our view of the transaction's performance, including: APRIL 7,

7 Reviewing reports detailing the performance of the assets in the collateral account; Analyzing the annual reset report; and Keeping informed of peril model updates. Transaction Structure Transaction Summary Everglades Re is a Bermuda exempted company incorporated in 2012 and licensed as a special purpose reinsurer. It is currently seeking to raise $[400] million to collateralize an excess of loss reinsurance agreement with Citizens. Everglades Re raised $750 million in 2012 and $250 million in 2013 to collateralize the reinsurance agreements it entered into with Citizens. Under the indenture and series supplement, Everglades Re will assign and pledge to the indenture trustee for the benefit of the noteholders as security for the payment of the principal amount of, and interest on, each class of notes, all of its right, title, and interest in and to the reinsurance trust account related to such class of notes, subject to the prior ranking security interest of Citizens. In accordance with a deed of charge among itself, the indenture trustee, and the paying agent, Everglades Re will assign by way of security to the indenture trustee, the paying agent, and the noteholders as security for the payment of APRIL 7,

8 the principal amount of, and interest on, each class of notes all its right, title, benefit, and interest in, to, and under the note payment account. Catastrophe Exposure The notes will cover [ ]% of ultimate net losses to the personal residential and commercial residential exposure of Citizens Coastal Account from hurricanes on a per occurrence basis between the initial attachment point of $5.202 billion and the initial exhaustion point of $7.702 billion. Citizens is not required to retain any percentage of this layer. Losses will be based on the ultimate net losses of Citizens. Ultimate net loss does not include extra-contractual obligations and losses in excess of policy limits. The first risk period begins on the day after closing, through May 31, The maturity date of the transaction may be extended by up to 36 months beyond the scheduled redemption date to allow for loss development and reporting, however, the risk period will not be extended. The two annual resets will be effective on June 1, 2015 and 2016, respectively, and will be based on Citizens' exposures as of Feb. 28, 2015 and 2016, respectively. The final risk period will end on April 21, On each reset date, the attachment point will be reset to keep the probability of attachment within the 2.74% to 3.04% range. The initial annual expected loss is 2.30% and will be reset within the 2.15% to 2.45% range, and the initial exhaustion probability is 1.72%. Losses are calculated on an annual aggregate basis and are limited to the risk period in which the event occurs. Losses within a risk period are not included when determining the attachment level for subsequent resets. The following tables are based on Citizens' exposure database as of Dec. 31, Table 1 Total Insured Value By Florida County* Miami-Dade Broward Palm Beach Sarasota 9.00 Monroe 6.00 Lee 5.00 Pinellas 4.00 Collier 4.00 Volusia 3.00 Escambia 2.00 Walton 2.00 All others *Totals may not add due to rounding. APRIL 7,

9 Table 2 Contribution To Expected Loss By County And Line Of Business Personal residential lines Miami-Dade Broward Palm Beach Monroe Sarasota 4.80 All other counties 8.50 Total personal residential lines Commercial lines Miami-Dade 9.40 Broward 6.80 Palm Beach 6.40 Sarasota 1.80 Monroe 1.50 All other counties 2.60 Total commercial residential lines *Totals may not add due to rounding. Table 3 Occupancy Details By Line Type of dwelling % of replacement value Personal lines Permanent dwelling: single-family Apartment/condos 9.19 Permanent dwelling: multifamily 0.2 Commercial-residential lines Apartment/condos General commercial 2.04 Permanent dwelling: multifamily 0.31 Parking 0.28 Entertainment and recreation 0.13 Professional technical and business services 0.08 Restaurants 0.05 Temporary lodging 0.03 Personal and repair services 0.01 Church <.01 General residential <.01 Universities, colleges, and technical schools <.01 APRIL 7,

10 Table 4 Contribution To Expected Loss By Saffir Simpson Category* Saffir Simpson category Contribution (%) *Totals may not add due to rounding. Loss Calculation The ultimate net loss for each covered event will be calculated as follows: Step 1: Calculate gross losses (which is the sum of paid losses and the amount of loss reserves that are estimated and scheduled to become paid losses within 30 calendar days following the date of the relevant proof of loss claim--limited to the lesser of 50% of loss reserves or 80% of the paid claims of the immediately preceding 30-day period--and loss reserves at commutation). Step 2: Multiply the amount determined in step 1 by the loss adjustment expense factor of Step 3: Multiply the amount in step 2 by the growth allowance factor. The loss payment amount will be calculated as follows: Step 1: Sum the ultimate net loss from each covered event in the risk period (not to exceed the risk period exhaustion level, initially $7.702 billion). Step 2: Subtract the attachment level amount (initially $5.202 billion) from the amount in step 1. Step 3: Multiply the amount in step 2 by the insurance percentage, [ ]% for the notes' first annual risk period. Step 4: Subtract from this total the sum of all previous payments loss amounts. For each loss event, the growth limitation factor is the lesser of 1.00 and the ratio of the growth allowance factor to the actual growth factor. The growth limitation factor is either 1.0 or the ratio of the growth allowance factor (1.10) to the actual growth factor, whichever is less. The actual growth factor is the ratio of the number of policies in the ceded block subject to the event as of the month ending at least 15 days before the loss occurrence to the number of policies in the ceded block subject to the event as of the previous calculation date (Dec. 31, 2013, and Feb. 28, 2015 and 2016, as applicable). Principal and Interest Payments on the Notes The notes will pay interest quarterly in arrears at a rate equal to the investment yield on the money-market funds held in the reinsurance trust account plus an interest spread (the reinsurance premium payable from Citizens to Everglades Re). The coupon will be paid on the outstanding balance of the notes beginning on the first day of the accrual period which would reflect principal reductions, if any. APRIL 7,

11 The interest spread paid on the notes for the second and third risk periods will be tied to changes in the modeled annual attachment probability, which could increase or decrease at an annual reset that would in turn increase or decrease the interest spread paid on the notes. The adjusted interest spread for the second and third risk periods will equal the product of the initial interest spread and the updated modelled probability of attachment, divided by the initial modelled probability of attachment (2.89%). During a potential extension period of up to 36 months (in one-month periods), the interest spread will depend on the type of extension. The purpose of the extension is to allow for claims loss estimates to develop. The risk period, however, does not extend. Investors will be paid interest at the rate established at closing on the original principal balance of the notes during the first year of the notes, even if there is a partial or a total reduction of the notes' outstanding balance. Principal will be redeemed on the latter of the scheduled redemption date (which will include an early redemption date) or any maturity extension date. Reduced interest event If the sum of each reduced interest loss estimate exceeds the reduced interest event trigger amount, the interest rate payable on the notes will equal the reduced interest spread. A reduced interest loss estimate equals Citizens estimate of the ultimate net loss (including both paid losses and loss reserves) from a loss event minus the applicable attachment point on the date of the loss event. A reduced interest event trigger amount equals the applicable exhaustion point. A reduced interest event does not apply during any extension period and will have no effect on the interest spread prior to the first anniversary of the issuance date. The reduced interest spread is [0 50]%. Each quarter, Citizens will calculate the sum of each reduced loss estimate. If this sum is less than 100% of the applicable exhaustion point minus the applicable attachment point, the reduced interest event will be terminated. Noteholders will be paid a true-up interest spread that will equal the initial interest spread less the reduced interest spread multiplied by the outstanding principal amount of the notes (less any principal reductions) for each accrual period during which the reduced interest spread applies. Note maturity The scheduled redemption date is April [ ], Early redemption of the notes An early redemption will occur if: The outstanding principal amount of the notes is less than or equal to 10% of their original principal amount; There is a reset agent failure event; Citizens fails to make a premium payment required by the reinsurance agreement; A change in laws in any jurisdiction impairs Citizens' ability to lawfully perform, or materially increases the regulatory burden of Everglades Re to perform its obligations as set forth in the reinsurance agreement; and There is a change in tax law. APRIL 7,

12 Extension events An extension event will occur if: Citizens elects to require Everglades Re to extend the maturity of the notes for a period of one month for up to 36 months (there are no specific loss thresholds that have to be met, and the initial extension spread will be [3.00]%); and The ultimate net loss equals or is greater than 75% of the attachment level; then, the extension reduced interest event spread will be [0.50]%. Related Criteria And Research Rating Natural Peril Catastrophe Bonds: Methodologies and Assumptions, Dec. 18, 2013 Principles For Rating Debt Issues Based On Imputed Promises, Oct. 24, 2013 Methodology: Principal Stability Fund Ratings, June 8, 2011 Default Table Used To Rate Insurance-Linked Securitizations Updated, May 8, APRIL 7,

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