American Integrity’s cat bonds face rising hurricane Ian losses

US primary insurer American Integrity has raised its estimate for losses from 2022’s hurricane Ian and this has caused a further decline in the secondary market prices for some of its Integrity Re catastrophe bonds, with one issuance now marked as likely facing a total loss, Artemis can report.

We’ve learned from sources that American Integrity’s updated estimate for ultimate net losses from hurricane Ian was released in December.

After that, once the cat bond market had time to absorb the potential ramifications of the new estimate, some of the Integrity Re catastrophe bonds were marked down again, the riskiest one particularly heavily.

American Integrity’s outstanding cat bonds were broadly marked-down after major hurricane Ian struck Florida in September 2022.

The most at-risk is the the $150 million Integrity Re II Pte. Ltd. (Series 2020-1) issuance, which sat lowest down in the American Integrity reinsurance tower, and these Class A notes had already had their maturity date pushed out to April 2028 on the threat of hurricane Ian losses last April.

At the time, those Integrity Re 2020 cat bond notes were the most marked-down in the secondary market, with some cat bond trading desks discounting their price by as much as 50%.

Now, on the back of an updated loss estimate from the sponsor, the Integrity Re II 2020-1 Class A cat bond notes have now been marked down for a near total loss, with secondary pricing sheets showing the notes marked as low as 1 cent on the dollar at this time.

This suggests the market is now anticipating a total loss of the $150 million in outstanding principal for the Integrity Re II 2020-1 cat bond notes.

We’re told this Integrity Re II marking down was a cause of December’s cat bond fund returns coming in lower than anticipated for some cat bond fund managers.

At this stage, more than one year and three months since the occurrence of hurricane Ian, it seems likely American Integrity’s updated loss estimate is reasonably accurate, so it feels safe to assume a significant, perhaps as much as 100%, loss of principal to these $150 million of Integrity Re II 2020-1 catastrophe bond notes will now occur once the loss total is finalised.

The next most at-risk tranche of cat bond notes sponsored by American Integrity are the $50 million Integrity Re Ltd. (Series 2019-1)  Class A issuance.

The $50 million of Integrity Re 2019-1 cat bond notes had also had their maturity date extended, as we reported in June 2023, at which time these notes were marked for bids of between 70 and 90 across broker cat bond pricing sheets.

There has been a further decline in the secondary pricing for the Integrity Re 2019-1 cat bond notes in the wake of the updated loss estimate from American Integrity.

Now, pricing sheets seen by Artemis show the Integrity Re 2019-1 cat bond notes marked down as low as 50 cents on the dollar, although still more widely marked in the range of 70 to 80 cents.

Finally, the $75 million Integrity Re Ltd. (Series 2022-1) cat bond notes have also been marked down a little further on some cat bond pricing sheets.

Back in June 2023, the 2022-1 Integrity Re notes were marked down around 10 cents on the dollar, but this has now risen to see the notes pricing in a range from 80 to 90, so they are now marked down as much as 20 cents.

American Integrity opted to extend the maturity dates for the two extended Integrity Re cat bonds right out to 2028, so their could be a while to go until the final losses are understood, with the cat bond backed reinsurance protection remaining available to the sponsor as its hurricane Ian loss is finalised and any reinsurance recoveries under the Integrity Re cat bond program come due.

You can view details of many catastrophe bonds that have been triggered and made payouts, as well as cat bonds currently considered at-risk, in our Deal Directory.