Gator Re investors face loss as claims exceed attachment point

by Artemis on December 28, 2016

Qualifying reported claims covered by the Gator Re Ltd. catastrophe bond transaction have now passed the attachment point, Artemis has learned, with the latest loss report for the cat bond revealing an impact of over $195 million at the end of November.

The attachment point for the Gator Re cat bond, the point at which qualifying losses would begin to erode investor principal is set at $175 million, so at this stage if these losses are confirmed it looks like investors are facing a $20 million or more loss of principal on the deal.

Qualifying losses from the severe thunderstorm peril, which typically includes tornado, hail and straight line winds from convective weather, have been steadily rising throughout 2016 taking the reported estimate of qualifying ultimate net losses dangerously close to the attachment point.

In our last update on Gator Re we revealed that the loss tally had reached $164,965,969, which was 94.27% of the way to the $175 million attachment point.

Now, sources said that the figure has risen significantly during November and the total has just reached $195,154,498 at the end of November, suggesting a $20.155 million loss to investors. So far no events have occurred in December that could add to the losses yet, but if they do it will add to the total meaning the loss to investors could rise even higher.

We understand that the loss reports are initial estimates and subject to calculation agent assessment and revision if necessary. Most of the increase in the loss tally is from events earlier in the year, we understand, with around $7 million from events that actually occurred in November.

However, the fact that these reports show the deal has been triggered by such an amount would seem to suggest that investors must ready themselves for some erosion of capital and that not all of the principal will be returned at the end of the deal’s term, which is the end of 2016.

As it is the aggregate Section B coverage that is now facing losses, only the amount that losses extend above the attachment point would be lost, so at this stage just over $20 million. However, as we have written before, there have been other events in December that could result in some further qualifying losses to the bond, so the final estimated loss report at the end of the coverage period could be higher.

We understand that a partial repayment is now the likely end result for Gator Re. At the end of the year the Gator Re cat bond will likely face an extension event, during which time the losses will be firmed up and reported back to investors so that they know exactly what loss of principal they could face.

Of course it is important to note that loss estimates can go down as well as up, so any loss of principal could drop as well as rise.

As an aggregate cat bond covering frequency style loss events Gator Re will do its job in 2016, providing sponsor American Strategic with a payout for losses above its chosen attachment point. An example of a cat bond being triggered under the circumstances it was designed to.

Update: An extension notice for a potential $35 million loss was subsequently filed.

We will update you as and when any more details come to light.

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Also read:

Gator Re losses near trigger, now over 94% of attachment point.

Gator Re cat bond secondary price rises despite rising loss estimate.

Gator Re cat bond qualifying losses now 85% of way to trigger.

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