Retro aggregate cat bonds trade down on potential hurricane losses

In recent days a handful of secondary market trades have been seen for catastrophe bonds that provide retrocessional reinsurance on an aggregate basis, as investors try to understand the potential for losses due to hurricanes Harvey and Irma’s combined impacts.

The catastrophe bond market has been marked down on the potential for bonds to be triggered by the recent hurricanes.

A number of per-occurrence cat bonds from Florida primary insurance sponsors have led the market down, as we reported yesterday,, suffering the most severe drops in pricing.

But also considered at risk are some aggregate catastrophe bonds, particularly those sponsored by major re/insurers looking for reinsurance and retrocession coverage and that use an industry loss trigger.

The Class A-1 notes of the Galilei Re Ltd. (Series 2016-1) cat bond, sponsored by XL Group and XL Catlin companies, has traded at 62 cents on the dollar on Friday of last week. This cat bond, which has an expected loss of 8.65%, has been marked down by brokers for bids averaging in the high 40’s, so is clearly deemed at risk.

The Class D-1 notes from the same Galilei Re 2016-1 cat bond deal also traded on Friday 15th September, at a price of 97.75 and again on Monday 18th at 98. This tranche is much less risky though, having an expected loss of 1.86%, so most would consider these relatively safe and the trades recorded are more likely due to an investor removing exposure to the recent hurricanes from their portfolio.

The Kilimanjaro II Re Ltd. (Series 2017-1) Class A-1 notes, sponsored by Bermudian reinsurance firm Everest Re, traded on Friday at 88.5 cents on the dollar, so a slightly distressed level. These cat bond notes have an expected loss of 5.74% and are the riskiest tranche of this cat bond issuance.

The B-1 notes from the same cat bond issue from Everest Re traded on Friday as well at 95, but again these are less risky and the A-1 notes would be eroded first if the cat bond attachment is reached by the industry loss estimates.

The Class C-1 notes of the same Kilimanjaro II Re cat bond have also traded in recent days, but only slightly below par, which could be a normal price given we’re in the peak of the U.S. hurricane season still.

We’re told that there have been other trades of the aggregate retrocessional reinsurance cat bonds in recent days, although these haven’t been captured by Trace.

It is still very difficult to know where losses to catastrophe bonds may come from, with the discounted primary insurer bonds we highlighted yesterday still deemed most at risk, as well as the aggregate retro cat bonds that could trigger due to the combined losses from Harvey and Irma.

We’ll continue to update you as the impacts of the recent hurricanes to the catastrophe bond market become clearer.

You can read all about every cat bond issued in the Artemis Deal Directory and track the development of the cat bond market using the Artemis Dashboard.