Gator Re loss a $29.5m reinsurance recovery for American Strategic

by Artemis on February 16, 2017

The recovery and payout made under the triggered Gator Re Ltd. catastrophe bond has been pegged at $29.5 million by the parent company of sponsoring insurer American Strategic Insurance Corp., an increase on its earlier expectations.

American Strategic, which is a subsidiary of Progressive, has benefited from a reinsurance recovery under the Gator Re catastrophe bond after aggregate severe thunderstorm losses suffered by the insurer in 2016 exceeded the $175 million cat bond attachment point.

We reported in December that a loss report for November showed that aggregate losses from severe thunderstorms that qualified under the terms of the Gator Re cat bond had reached $195 million, so $20 million above the $175 million aggregate trigger point for the bond.

Sponsor American Strategic then filed an extension notice which stated that $35 million of Gator Re collateral would be withheld after the maturity date, in order to cover potential further loss creep as it continued to calculate aggregate claims that could be recovered.

In late January Progressive, the sponsors parent company, reported that the Gator Re catastrophe bond reinsurance recoverable had been estimated at $20.4 million in December, which was based on the November loss report update we assume.

But in the company’s latest filing dated yesterday, 15th Feb 2017, Progressive reports that the reinsurance recoverable from the Gator Re catastrophe bond increased during January to $29.5 million, as the tally of aggregate severe thunderstorm losses American Strategic could reclaim under the cat bond associated reinsurance became clearer.

This helped to reduce the insurers loss ratio by 11.8%, or the additional $9.1 million of recoveries, demonstrating the benefits of a cat bond coverage paying out as the terms define it should.

So the loss for insurance-linked securities (ILS) investors and funds becomes clearer, with the recoverable now standing at $29.5 million of the $200 million of notes issued by Gator Re Ltd. back in 2014, so could represent just under a 15% loss of principal.

It’s not yet clear whether the extension of the maturity of the notes and the holding of $35 million of collateral is still in effect. It it is, then the reinsurance recovery could grow a little further as losses continue to be firmed up. It’s also not clear whether the recoverable is all cat bond principal, or whether there is any inuring reinsurance associated with it.

Interestingly, Progressive also said in its filing that the insurer and subsidiaries suffered $12 million, of catastrophe losses from severe thunderstorms striking the U.S. south in January 2017.

While American Strategic sponsored a new cat bond that also provides severe thunderstorm coverage, Bonanza Re Ltd. (Series 2016-1), in December, this new bond is structured to respond on a per-occurrence basis so these January losses won’t be covered by it, but they could have been covered by Gator Re had it not matured or been repeated.

Also read:

Gator Re notes marked down on broker pricing sheets.

Gator Re extension notice filed for up to $35m loss.

Gator Re investors face loss as claims exceed attachment point.

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