A handful of cat bonds traded on hurricane Florence approach


Trading in the secondary market for catastrophe bonds has been light as hurricane Florence approached, but a handful of names did change hands while the forecast was still for a major hurricane wind impact in North Carolina.

Now, as we explained in our latest update on hurricane Florence, the wind speed forecast has been lessened, which doesn’t make Florence any less deadly but it does lessen the impact to the cat bond market.

Most cat bonds are exposed to wind related property damage during a hurricane event, that is the peril they are really trying to transfer to the capital markets investors. As a result, with the wind speeds slightly lessened for Florence, the chances of a cat bond market loss are reducing with them.

Two trades in particular are evident in a search of Trace, with both having potentially been exposed to Florence and having traded at a reduced price.

The parametric Metrocat Re 2017 catastrophe bond, which provides parametric New York area storm surge protection to First Mutual Transportation Assurance Co. (FMTAC), the New York State-licensed captive insurer and subsidiary of the New York Metropolitan Transportation Authority (MTA), traded in recent days at a below-par price.

Interestingly, we believe this trade likely happened a few days ago, despite the fact it is logged in Trace as from the 12th, as the Florence threat to NYC was actually considered highest at the end of last week.

Also, that was always an outlier scenario, so the investor or ILS fund who wanted to sell Metrocat Re must have been really keen to pass the risk onto someone else and not get caught with it just in case hurricane Florence had made it further north.

$250,000 of the Metrocat Re 2017 cat bond notes traded at a price of 96 cents on the dollar, which is lower than its last trade in August at above 100.

The other bond is Fortius Re II Ltd., a $100 million cat bond sponsored by AmTrust Financial Services which covers it for U.S. named storms on an indemnity basis.

AmTrust does have exposure in the region, but again this wasn’t a cat bond considered to be particularly at risk, so it seems more a case of an investor who just didn’t want to get caught out when the forecast for Florence was for a major category storm landfall.

Half a million dollars of the Fortius Re II notes traded at a below par 98.75 yesterday and its last trade prior had been at above par in July.

So in both of these visible trades, the hurricane exposed cat bonds have traded at below par at the time hurricane Florence was approaching. But in both cases these are not considered the most at risk bonds.

With the most at risk cat bonds trading has been light to non-existent, we understand, as bid and offer spreads remained wide through Wednesday.

Now, with the winds lessened and water becoming an increasing component of the eventual insurance and reinsurance market loss, the catastrophe bond market looks much less likely to experience significant impacts.

That is aside from the FloodSmart Re flood cat bond for the NFIP, which as part of the reinsurance program is at risk due to the extreme rainfall predicted with Florence.

We’d doubt anyone has traded that at distressed rates yet, but it is possible that some investors may look to offload a stake in FloodSmart Re today, as the rainfall and flooding outlook continues to look particularly severe.

Also read:

ILS fund values fluctuate on Florence, threat now reduced.

Hurricane Florence slightly weakened but dangerous, shift to water continues.

Florence is first major ILS market threat of year, fund impact estimates vary.

Florence could tie up retro collateral: Luca Albertini, Leadenhall.

Artemis London 2022 - Insurance-linked securities conference in LondonTickets are selling fast for Artemis London 2022, our first ILS conference in London. Sept 6th, 2022.

Register soon to ensure you can attend.

Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.