S&P: 15 cat bonds at risk from hurricane Matthew. We add a few more

by Artemis on October 7, 2016

According to rating agency Standard & Poor’s there are 15 catastrophe bonds it has given ratings to that are most exposed to hurricane Matthews impact on the Florida and U.S. eastern coastline. We also highlight a few which are not S&P rated and that we believe to be among the more exposed.

Hurricane Matthew track and forecast pathS&P said late yesterday that the 15 outstanding catastrophe bonds which provide protection from hurricanes to various cedents and are exposed to storms striking the state of Florida and U.S. south east seaboard, have the potential to be triggered and suffer losses as a result of Hurricane Matthew.

Important to note here that the latest forecast does have a slightly improved outlook for Florida, with a slightly weaker 120mph hurricane Matthew’s eye remaining just offshore.

A slight track shift to the east has improved the loss outlook (economic, insurance and reinsurance) slightly, but also important to add that any shift west could bring dangerous hurricane Matthew ashore on the Florida or south east U.S. coast at which point loss potential rises dramatically. So uncertainty remains high, in terms of the eventual impact, and any loss estimates in advance of this storm should be treated as purely indicative of modelled runs.

S&P lists the exposed catastrophe bonds that it rates:

  • $1.5 billion Everglades Re Ltd. (Series 2014-1) class A notes, (‘B+(sf)’);1 100% of exposure is to named storms in Florida. As of the most recent reset, the counties of Miami-Dade, Monroe, Broward, and Palm Beach contribute 25.6%, 22.6%, 22.5%, and 19.7%, respectively, to the modeled annual expected loss. The other counties contributing more than 1% to the expected loss are on the west coast of the state.
  • $300 million Everglades Re II Ltd. (Series 2015-1) class A notes (‘BB(sf)’); 100% of exposure is to named storms in Florida. As of the most recent reset, the counties of Miami-Dade, Broward, Monroe, and Palm Beach contribute 27.0%, 24.5%, 21.9%, and 20.2%, respectively, to the modeled annual expected loss. The other counties contributing more than 1% to the expected loss are on the west coast of the state.
  • $250 million Kilimanjaro Re Ltd. (Series 2014-1) class A notes (‘BB-(sf)’); hurricanes contribute 100% to the modeled expected loss. As of the most recent reset, Florida, South Carolina, and North Carolina contribute 92.4%, 1.9%, and 1.7%, respectively, to the modeled annual expected loss.
  • $200 million Kilimanjaro Re Ltd. (Series 2014-1) class B notes (‘BB-(sf)’); hurricanes contribute 88% to the modeled expected loss. As of the most recent reset, Florida, Virginia, Georgia, and South Carolina contribute 38.4%, 3.0%, 2.6%, and 2.1%, respectively, to the modeled annual expected loss.
  • $150 million Mona Lisa Re Ltd. (Series 2013-2) class B notes (‘BB-(sf)’); hurricanes contribute 96% to the modeled expected loss. As of the most recent reset, Florida contributes 64.8% to the modeled annual expected loss.
  • $120 million Mythen Re Ltd. (Series 2012-2) class A notes (‘B+(sf)’); 100% of exposure is to named storms. Based on the information in the offering circular, the counties of Miami-Dade, Palm Beach, Broward, and Pinellas contribute 17%, 12%, 12%, and 4%, respectively, to the modeled annual expected loss.
  • $80 million Mythen Re Ltd. (Series 2012-2) Class C notes (‘B-(sf)’); 100% of exposure is to named storms. Based on the information in the offering circular, the counties of Miami-Dade, Palm Beach, Broward, and Pinellas contribute 15%, 12%, 11%, and 3%, respectively, to the modeled annual expected loss.
  • $155 million Residential Reinsurance 2012 Ltd. (Series 2012-2) class 1 notes (‘BB+(sf)’); hurricanes contribute 79% to the modeled expected loss. Florida, the Southeast, and the Mid-Atlantic contribute 19.6%, 24.0%, and 22.4%, respectively, to the modeled annual expected loss.
  • $70 million Residential Reinsurance 2012 Ltd. (Series 2012-2) class 2 notes (‘BB(sf)’) hurricanes contribute 79% to the modeled expected loss. Florida, the Southeast, and the Mid-Atlantic contribute 19.7%, 17.0%, and 23.7%, respectively, to the modeled annual expected loss.
  • $95 million Residential Reinsurance 2013 Ltd. (Series 2013-1) class 3 notes (‘B-(sf)’); hurricanes contribute 72% to the modeled expected loss. Florida, the Mid-Atlantic, and Southeast contribute 25.8%, 18.6%, and 13.7%, respectively, to the modeled annual expected loss.
  • $70 million Residential Reinsurance 2013 Ltd. (Series 2013-2) class 4 notes (‘BB-(sf)’); hurricanes contribute 77% to the modeled expected loss. Florida, the Mid-Atlantic, and Southeast contribute 23.7%, 20.1%, and 13.0%, respectively, to the modeled annual expected loss.
  • $125 million Residential Reinsurance 2015 Ltd. (Series 2015-2) class 3 notes (‘B-(sf)’); hurricanes contribute 72% to the modeled expected loss. Florida, the Mid-Atlantic, and Southeast contribute 25.9%, 18.5%, and 13.7%, respectively, to the modeled annual expected loss.
  • $110 million Residential Reinsurance 2016 Ltd. (Series 2016-1) class 13 notes (‘BB-(sf)’); hurricanes contribute 70% to the modeled expected loss. Florida, the Mid-Atlantic, and Southeast contribute 13.9%, 20.2%, and 23.0%, respectively, to the modeled annual expected loss. Note, this is an annual aggregate transaction that covers severe thunderstorms and earthquakes (including fire following) as well. To date, there has been one covered event that has generated an estimated covered loss of approximately $154 million; the attachment point is currently $1.918 billion.
  • $95 million Riverfront Re Ltd. notes (‘BB-(sf)’); hurricanes contribute 95% to the modeled expected loss. Florida, Georgia, and North Carolina 24.5%, 1.9%, and 1.7%, respectively, to the modeled annual expected loss.
  • $125 million Tradewynd Re Ltd. (Series 2013-1) class 1 notes (‘B+(sf)’); hurricanes contribute 60% to the modeled expected loss. Florida and South Carolina 54.8% and 1.4%, respectively, to the modeled annual expected loss.

Additionally S&P highlights five tranches of notes issued through Allstate’s Sanders Re Ltd. special purpose insurer (which will be some of the tranches of Sanders Re Ltd. (Series 2013-1), Sanders Re Ltd. (Series 2014-1) and Sanders Re Ltd. (Series 2014-2)). For these cat bond tranches most of the modeled expected loss is contributed by hurricanes in the New York tristate area. However, there is some exposure to losses in Virginia, North Carolina, South Carolina, and Georgia, which could all feel some impact from hurricane Matthew, but no exposure to Florida. S&P says the modeled contribution to expected loss in these states ranges from 14% to 16%, which makes these notes less likely to be hit as it would take a major storm and Matthew is not forecast to be so impactful to the covered areas.

The majority of the cat bonds listed above are structured to provide the sponsor reinsurance protection on a per occurrence basis, except for Everglades Re, Everglades Re II, Kilimanjaro Re Class B, Mona Lisa Re, and Residential Reinsurance 2016 Ltd., which all provide reinsurance coverage on an annual aggregate basis.

Most are indemnity cat bonds, based on the actual losses of the ceding company, except Kilimanjaro Re, Mona Lisa Re, and Mythen Re, which are all industry loss trigger bonds with payout factors to apply.

It’s interesting to look at the sponsors, as they are some of the most exposed insurance and reinsurance players in Florida and the south east coastal states.

Florida Citizens, Everest Re, Swiss Re, RenaissanceRe, USAA, Great American Insurance Group and AIG, all have high concentrations of exposure in the region. Of these, clearly Citizens has concentrated Florida coastal exposure still, but Swiss Re, Everest Re and RenRe are all large players in property catastrophe risk in the state as well, while AIG and USAA have large homeowner portfolios.

There are of course other insurance and reinsurance companies with cat bonds exposed in the regions under threat from hurricane Matthew, but these are the most likely to suffer a big loss meaning their cat bonds are most exposed (of those cat bonds S&P rates).

S&P said that at this time its ratings on these cat bonds remain unchanged, but that it would monitor the situation and provide updates should it be necessary as hurricane Matthew’s impact on Florida and the U.S. east coast becomes clearer.

These are just 15 cat bonds that S&P rates which are exposed to hurricane Matthew, but of course many more transactions are exposed which either aren’t rated or are rated by another agency.

Of the catastrophe bonds listed in the Artemis Deal Directory, which includes virtually every cat bond ever issued, of particular note are the following additional transactions (we believe):

  • Laetere Re Ltd. (Series 2016-1) – sponsored by United Property & Casualty Insurance, Family Security Insurance and Interboro Insurance, with particular exposure to Florida and particularly high attachment probabilities of 3.08%, 7.55% and 15.12%, but because of the way they provide their protection are considered especially at risk from a major hurricane, we understand.
  • Manatee Re Ltd. (Series 2016-1) – sponsored by Safepoint Insurance Company. The Class C tranche of notes has a high attachment probability at 14.28%, while the base expected loss is 10.32%.
  • Citrus Re Ltd. (Series 2015-1) – sponsored by Heritage Property and Casualty Insurance Co., with concentrated Florida exposure and who’s Class C notes have an attachment probability of 6.23% and an expected loss of 5.05%.
  • Citrus Re Ltd. (Series 2016-1) – also from Heritage, with an E-50 tranche that has an attachment probability of 8.11% and an expected loss of 5.75%.
  • Blue Halo Re Ltd. (Series 2016-1) – sponsored by Allianz ART, who’s Class B notes have an attachment probability of 15.14% and an expected loss of 11.53%, while Class A have an attachment probability of 8.65% and expected loss of 7.24%.

That’s just a selection of the more exposed, higher-risk, catastrophe bonds which cover hurricane risks in Florida and/or the U.S. south east coastal states.

At this time it’s impossible to say whether any of these could be impacted. Hurricane Matthew’s forecast path has shifted very slightly east, which could make the impacts lower, and it has weakened slightly to 120mph sustained winds.

But still this hurricane has the potential to cause an insurance and reinsurance industry loss above $10 billion so it is far too early to say whether the cat bond market will face any loss.

Also read our previous articles on hurricane Matthew:

Matthew could drag down re/insurer returns, but fail to increase rates: Peel Hunt.

Hurricane Matthew has potential to trigger cat bonds & ILS: RMS.

Barbados to see $975k from CCRIF parametric payout for Matthew.

Hurricane Matthew hits Bahamas, to intensify – Florida outlook worsens.

Matthew could hike aggregate cat bond attachment probabilities: RMS.

Hurricane Matthew threat awakens live cat market.

Cat bonds in holding pattern, Florida on watch for hurricane Matthew.

Florida, U.S. east coast now face risk of hurricane Matthew landfall.

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