Insurance and reinsurance firm Argo Group has extended maturity of the $65 million Class C tranche of notes from its Loma Reinsurance (Bermuda) Ltd. (Series 2013-1) multi-peril catastrophe bond to allow for losses to be finalised, but has allowed the other two tranches to mature showing that they are safe from losses now.
Artemis was first to report that the Loma Re 2013-1 catastrophe bond from Argo was likely to face some losses after the trio of major hurricanes that struck the United States in the second-half of 2017.
The Loma Re Bermuda 2013 cat bond provides Argo Group and subsidiaries with annual aggregate reinsurance and retrocession for losses from tropical cyclones, earthquakes and severe thunderstorms. The cat bond faced qualifying losses from all three of the recent major hurricanes as it covers the U.S. and Puerto Rico, so has been affected by aggregated losses from each of hurricanes Harvey, Irma and Maria.
The notes are structured with dual trigger, both indemnity and industry loss, to provide Argo Group companies, including its Lloyd’s syndicates and Argo Re, with both reinsurance and retrocessional protection. With updates to the PCS reported industry losses for the hurricanes now available the estimate of losses suffered by Argo will be deemed more accurate.
We reported in October that the published loss estimate of Argo’s ultimate net losses that qualify under the terms of the cat bond as indemnity from the three hurricane events was said to be $267.7 million.
The $65 million Class C tranche of notes which are the most risky cover Argo’s losses from an attachment point of $240 million up to $340 million, after which a $75 million Class B tranche covers Argo’s losses from $340 million up to $440 million.
With more loss data now available and also the PCS industry loss estimates required to calculate the industry index values that contribute to the final qualifying loss tally, Argo now has greater clarity of its exposure from the hurricanes and as a result has elected to allow two tranches of the Loma Re 2013 cat bond to mature.
The $75 million Class B tranche and the least risky $25 million Class A tranche of notes have both been allowed to mature and delist fully, which means ILS investors holding those notes will be safe from any losses.
That will please investors in the Class B tranche, as some erosion of these notes had originally been expected.
However the riskiest $65 million Class C tranche of notes has had its maturity extended by four months until April 7th 2018, so this tranche is still facing some losses and Argo is electing to hold the full collateral of the tranche until it has a final loss estimate and can calculate what recovery it will eventually make from these noteholders.
There will be a recovery from these notes, we understand, it is simply a case of having to wait for finalised industry loss estimates and the final indemnity loss total, which will then allow Argo to make its claim from the Loma Re 2013 Class C cat bond noteholders.
The Class C notes remain marked down for a total loss on a number of secondary cat bond market broker sheets, so at this stage the market is preparing itself for the final determination to be a full payout of the $65 million or principal. But that could change should loss estimates reduce before these notes are allowed to mature.
The Loma Reinsurance (Bermuda) Ltd. (Series 2013-1) catastrophe bond from Argo Group is featured in our listing of cat bond payouts and defaults, where you can find details of all catastrophe bonds triggered and payouts made, since the market began.
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