SCOR’s Atlas IX cat bonds now seen most at risk of aggregate deals

Two more aggregate retrocession catastrophe bonds are being priced for potential losses from recent hurricane events by brokers, with French reinsurance firm SCOR’s $150m Atlas IX Capital Limited (Series 2015-1) marked right down to single digit bids and its $300m Atlas IX Capital DAC (Series 2016-1) discounted by as much as 65%.

Both of these catastrophe bonds provide SCOR with aggregate retrocessional reinsurance coverage against hurricane losses across the U.S. and importantly including Puerto Rico. Each features a trigger based on industry loss estimates provided by PCS.

Given the impacts of hurricanes Harvey, Irma, Maria and now also Nate, the industry losses from these events are mounting and putting a number of aggregate cat bonds as risk of loss. SCOR’s Atlas IX transactions are just the latest to receive focus from brokers and ILS investors, with the deals marked down in the last week on cat bond traders pricing sheets.

With PCS estimates now emerging for some of the hurricane events, investors and secondary cat bond traders are gaining greater insight into which of the aggregate cat bonds they should consider to be most at risk.

At first it was the obvious ones, the Kilimanjaro Re cat bonds from Everest Re, the Galileo and Galilei transactions from XL Group and the Blue Halo cat bonds from Allianz Risk Transfer.

But as the days have passed since the hurricanes landfall and the first estimates have emerged, other cat bonds have come into the limelight, including Argo Group’s Loma Re 2013-1 cat bond and now the SCOR sponsored Atlas IX deals.

The Atlas IX Capital 2015 cat bond is the riskier of the two transactions from SCOR and the notes of this $150 million deal are considered to be much more at-risk of losses by the trading brokers pricing sheets.

In fact, in the latest pricing Artemis has seen from Friday, one broker at least is assuming that this cat bond is going to be a total loss, with it priced for bids in single digits and the average bid across a number of broker sheets just 21 cents on the dollar.

Just this morning, SCOR announced its estimated net losses from recent catastrophe events as EUR 430 million, after retrocession. It’s not clear at this time whether the reinsurer is factoring an Atlas IX 2015 payout into this estimate.

Cat bond funds will be marking their portfolios based on broker indications and so this cat bond may be marked right down in most portfolios as a result of the latest updates.

Meanwhile, the Atlas IX Capital 2016 cat bond has had its $300 million of notes marked down to as low as 35, with the average across pricing sheets we’ve seen coming out at just above 50. This suggests the broker desks see at least a 50% chance of this cat bond also facing some losses from recent hurricane events.

Both of the Atlas IX Capital catastrophe bonds from SCOR are exposed to all four of the hurricanes, Harvey, Irma, Maria and now Nate, although both cat bonds have a deductible in place so Nate may not be sufficiently large a loss to qualify.

Hurricane Maria is now the unknown factor, as PCS’ industry loss estimates are out for Harvey and Irma already. But clearly the ILS market considers the 2015 Atlas cat bond from reinsurance firm SCOR as likely to face at least some losses, while the 2016 is considered also at-risk.

The fate of these cat bonds should become clear once the hurricane Maria industry loss estimate is available to the market.

Other aggregate catastrophe bonds, largely retrocessional, and a few per-occurrence reinsurance cat bonds remain on watch, with some considered more likely to face losses than others.

Of note are a number of outstanding catastrophe bonds in particualr.

The $6.75 million Class C tranche of the Casablanca Re Ltd. (Series 2017-1) catastrophe bond, sponsored by Florida specialist insurer Avatar Property and Casualty Insurance Company, which remains marked down significantly across most pricing sheets with bids averaging around 35 to 40 cents on the dollar.

The Class B tranche of the Blue Halo Re Ltd. (Series 2016-1) cat bond from Allianz Risk Transfer is about the next most discounted bond in the secondary market, with it being marked for bids as low as 20 and averaging about 40.

A number of tranches of notes from some of Heritage’s Citrus Re catastrophe bond series are also marked down, with the Citrus Re Ltd. (Series 2016-1) Class E notes remaining the ones considered most at risk, marked as low as 30, the Citrus Re Ltd. (Series 2015-1) Class C notes marked just below 40 on some pricing sheets and the Citrus Re Ltd. (Series 2017-2) Class B tranche marked in the mid-30’s to as high as 50’s.

Whether these Citrus Re cat bonds face any losses could take some time to discern, as they are indemnity structures, so they may remain marked down in the cat bond pricing sheets for a number of weeks or months.

The Integrity Re Ltd. (Series 2017-1) per-occurrence cat bond deal, which provides American Integrity Insurance Company of Florida, Inc. with reinsurance, is also marked down to as low as bids of 40, but again it could take weeks or months for the final estimates of ultimate net losses to emerge.

A number of tranches of XL Groups’ Galileo Re and Galilei Re aggregate retro cat bonds are still marked down, although right now it is thought unlikely that any of these bonds face losses unless the PCS estimates for Harvey and Irma rise significantly. The XL sponsored cat bonds do not cover Puerto Rico hurricanes, so Maria is not a factor here.

Conversely, Everest Re’s Kilimanjaro Re series of cat bonds do cover Puerto Rico named storms, and so for the exposed tranches here it will need the estimate for Maria to be made available before it is known whether these bonds will face a loss. At this time some Kilimanjaro Re tranches remain marked down, although not as significantly as other cat bonds suggesting the market sees them as a little less at risk, at this time.

Argo Group’s Loma Reinsurance (Bermuda) Ltd. (Series 2013-1) multi-peril cat bond is still considered at some risk of facing losses, another aggregate cat bond that features a combined industry loss and UNL trigger. This cat bond is marked around the mid-50’s to 60’s, but given the dual-trigger it could take longer for the fate of this bond to be understood.

The Loma Re cat bond is another that does cover Puerto Rico hurricane losses on an industry estimate basis, so its fate could become clearer once the industry estimate for that event is available.

While this seems like a lot of catastrophe bond risk capital at risk, which it is, the eventual amount of losses that cat bond investors face will not reach anywhere the combined total.

In reality it seems that only a few of these exposed cat bond tranches are really likely to face a loss, however a number of the aggregate deals will be very exposed to any further events that occur during their current risk periods.

We’ll update you as any further insight on potential catastrophe bond losses from recent events emerges.