Everest Re alternative capital structures to take share of Q3 cat losses


Bermudian reinsurance firm Everest Re has estimated third-quarter catastrophe losses from hurricanes Harvey, Irma, and Maria and the Mexico earthquakes of $1.2 billion pretax, after reinsurance and reinstatement premiums, but its alternative capital vehicle Mt. Logan Re and retrocession helps to soften the overall impact.

Everest Re has based its estimates on an industry loss of around $100 billion combined across the events and says that the net economic impact of all these catastrophe losses is expected to be $900 million after taxes.

The firm said that it has suffered losses across both its reinsurance and insurance segments and explained that it expects it to take several months before it has a clear view of the total underlying losses from these catastrophe events.

However with “significant unused retrocessional capacity, including aggregate protections,” providing Everest Re with coverage above these estimated levels, the company has protection remaining should the loss estimates increase significantly.

Of that remaining aggregate retro protection much of it is fully-collateralized. Everest Re has its Kilimanjaro Re catastrophe bonds which total $2.8 billion, making it the biggest cat bond sponsor in the market right now, based on risk capital outstanding.

So far none of the Kilimanjaro Re cat bonds has attached, but they are not that far off and if the loss estimates were to rise significantly it is highly possible that some of the riskiest layers could face some losses.

These cat bonds largely cover Texas, Florida, and Puerto Rico, so are exposed to all three of the major hurricanes, Harvey, Irma and Maria.

Additionally, Everest Re’s collateralized third-party capital management vehicle Mt. Logan Re, which has roughly $1 billion of assets under management, adds further support as it participates in the reinsurers catastrophe underwriting exposures.

“These alternative capital structures, placed alongside a number of additional protections, including traditional reinsurance and retrocession coverage has provided protection against the recent catastrophe events,” the company explained.

Given where Mt. Logan Re specialises, in peak catastrophe risks, it is almost certain to face a couple of months of negative returns due to hurricane Harvey in August and the impacts of Irma and Maria in September.

Dom Addesso, the Company’s President and Chief Executive Officer, commented on the recent catastrophe events; “Our thoughts are with the people of Texas, Florida, Puerto Rico, the Caribbean and Mexico, as they begin the recovery process. We have long established relationships in these markets, forged over many decades, and together with our clients will stand in support of these efforts. Our robust balance sheet and strong risk management program provides assurance to our clients that Everest will deliver when it matters most.”

Alternative capital and collateralized reinsurance provides large reinsurers like Everest Re with significant support these days. With almost $4 billion of alternative capital from the cat bonds and managed in Mt. Logan Re, plus likely some other collateralized retrocession in place, Everest Re is a significant user of the capital markets to help it manage its underwriting business and PML’s.

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