Akibare Re 2016-1 cat bond set for 100% loss of $200m principal

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Mitsui Sumitomo Insurance has raised its estimate of losses from Japanese typhoons that struck in 2018, which has driven the qualifying aggregate loss amount under the terms of its $200 million catastrophe bond Akibare Re Ltd. (Series 2016-1) over the exhaustion point.

typhoon-jebi-ir-satelliteAs a result, it’s now expected that the $200 million of Akibare Re 2016-1 cat bond notes will be marked down to close to zero on broker pricing sheets today, to reflect the new expectation that this will be a total loss of principal for the investors and funds holding this cat bond.

This catastrophe bond provides sponsoring insurer Mitsui Sumitomo with a source of collateralized annual aggregate reinsurance backed by the capital markets, covering certain losses from Japan typhoons including some flood risk as well as wind.

The main cause of the ongoing loss creep that has affected the value of the Akibare Re 2016-1 cat bond has of course been typhoon Jebi, which with insurance and reinsurance industry loss expectations now around $13 billion has driven a significant impact to Mitsui Sumitomo, as one of the largest domestic Japanese insurers.

When we last wrote about this deal in April, the broker pricing sheets seen by us showed the $200 million of Akibare Re 2016-1 cat bond notes marked down for bids as low as 20 cents on the dollar, suggesting a roughly 80% loss of principal.

But the continued loss creep has driven Mitsui Sumitomo’s loss estimates higher and according to specialist cat bond and ILS investment fund manager Plenum Investments the aggregate loss from across four Japanese storms in 2018 has now risen to JPY 367 billion, which is actually above the exhaustion point for the notes that was set at JPY 360 billion.

So that suggests a 100% loss of principal for holders of the Akibare Re 2016-1 catastrophe bond is almost guaranteed.

Plenum Investments explained that loss reserves make up a significant portion of Mitsui Sumitomo’s latest loss estimate, meaning this is not the final figure from the firm. However Plenum also notes that it’s unlikely to go down much and so the expectation is that this cat bond is marked down to zero in portfolios.

Plenum notes that this finalises some uncertainty that cat bond funds and holders of this bond have been facing, with slowly creeping impacts flowing through from this bond as typhoon loss estimates increased.

Now at least investment managers can mark it down and move forwards, stabilising that part of their portfolio now having booked the total loss of principal.

“The risk of further loss adjustments from previous year’s events has been noticeably reduced,” as a result, Plenum Investments said.

So another catastrophe bond loss from the last two year’s moves closer to realisation for the market, although it could still be some months before the final official determination of loss is actually made.

You can view details of all at-risk tranches in our directory of catastrophe bond losses and cat bonds considered at-risk.

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