Argo’s Loma Re 2013 Class C cat bond maturity extended again

Insurance and reinsurance firm Argo Group has elected to extend the maturity data again for its at-risk $65 million Class C tranche of notes from its Loma Reinsurance (Bermuda) Ltd. (Series 2013-1) multi-peril catastrophe bond, as loss development continues.

With industry loss estimates for the 2017 hurricanes having risen again in recent weeks and Argo’s Loma Re 2013 catastrophe bond utilising a novel dual trigger, both indemnity and industry loss, it’s possible that the uncertainty over the amount of loss faced to this bond has now heightened, as with other industry loss trigger cat bonds.

However the broker trading desk price sheets all still reflect a secondary market bid price of between 55 and 57, suggesting a roughly 45% erosion of principal may be expected by investors in this cat bond.

The Loma Re 2013 C cat bond notes themselves have not traded since January, when a trade was recorded in Trace at 57 cents on the dollar.

Given the industry loss component it may have been expected that the secondary mark for these notes would have declined with the latest increase in industry loss estimates, but we’re told that further increases to those figures would likely be required in order for the erosion of this tranches principal to increase.

The Loma Re cat bond was structured to provide Argo Group companies, including its Lloyd’s syndicates and Argo Re, with both reinsurance and retrocessional protection. Hence the use of indemnity trigger to calibrate payouts for the reinsurance coverage and an industry loss index for the retrocession.

As an aggregate catastrophe bond, Argo’s Loma Re 2013 Class C notes face qualifying losses from all three of last year’s major hurricanes, being exposed to both the U.S. and Puerto Rico, so affected by aggregating losses from each of hurricanes Harvey, Irma and Maria.

The Loma Re 2013-1 catastrophe bond from Argo was first cited as likely to face some losses soon after the trio of major hurricanes struck the United States in the second-half of 2017. In January the insurer elected to extend the maturity of this Class C tranche, while allowing the other tranches to mature and then the maturity of the Class C notes was extended again to July.

Now the maturity date has been extended even further, to October 8th 2018, allowing for further time for loss estimates to develop from the 2017 hurricanes.

At some point the loss will be determined and Argo will settle for its payout, but as the industry loss estimates continue to rise, due to loss creep, re-opened Florida claims and cases of claims inflation due to assignment of benefits and loss adjustment costs, it is likely the re/insurer will keep extending the maturity until it feels the loss estimates have levelled off.

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.