The maturity dates have been extended again for some of the Seaside Re private catastrophe bond transactions that were issued by German reinsurance firm Hannover Re’s segregated accounts vehicle, Kaith Re Ltd., while two series of previously extended notes have now been allowed to mature.
There were just under $110 million of Seaside Re private catastrophe bonds that had their maturity dates extended previously (as we reported back in February), suggesting that they might have been considered at-risk of loss.
Normally, a catastrophe bond or other insurance-linked securities (ILS) arrangement has an extension applied to its maturity date so as to hold collateral in place while loss activity develops, in case it is needed to pay a recovery claim.
Should a qualifying catastrophe loss, or an aggregation of qualifying catastrophe losses, occur late in the term of a catastrophe bond, or private insurance-linked securities (ILS) arrangement, but without quite reaching the trigger, or only triggers a partial payout, it’s vital the beneficiary of the coverage can extend the term, to give certainty that the collateral will still be available should the loss creep higher and a recovery, or larger recovery, become possible.
There are other reasons a cat bond can have its maturity extended, of course, but it is most typical for this to be because of the potential for a recovery to be made in future, for a recovery to increase in size, or purely for a loss quantum to have time to more fully-develop.
Back in February there were some that $52.5 million of Seaside Re private catastrophe bonds that were originally issued in January 2020 and a further $56.75 million that had been issued in January 2021, which all had their maturity dates extended. These notes were all extended again to a maturity date of July 15th.
Now, we’ve learned that two series of these notes have been allowed to mature, with redemptions occurring. It’s not 100% clear whether any recoveries were made, but we believe from sources that these were allowed to mature because losses looked unlikely for these particular layers of risk.
Notes allowed to mature this month were:
As a result the series of notes still affected by a further extension of their maturities are detailed below, with these tranches now all extended by a further six months, with their new maturity dates set for January 15th 2023.
- $10m – Seaside Re (Series 2020-21)
- $5m – Seaside Re (Series 2020-22)
- $7.5m – Seaside Re (Series 2020-41)
- $4m – Seaside Re (Series 2021-21)
- $4m – Seaside Re (Series 2021-22)
- $5m – Seaside Re (Series 2021-23)
- $30m – Seaside Re (Series 2021-31)
- $3.75m – Seaside Re (Series 2021-41)
- $6.25m – Seaside Re (Series 2021-42)
So, that’s now $22.5 million of Seaside Re notes issued in 2020 and $53 million of Seaside Re cat bond notes issued in 2021 that remain on-risk for potential loss development, now right through until 2023, for a total of $75.5 million.
It remains unclear as to the specific catastrophe or severe weather loss events that may have caused these private cat bond extensions of maturity.
It’s possible these are aggregate reinsurance or retrocession structures, in which case there are likely a number of qualifying loss events still developing.
It’s also possible the beneficiary is reinsurance firm Hannover Re, as these Seaside Re private cat bonds may have been used as a way for investors to access its retrocession program in a securitized manner.
Hannover Re remains an important facilitator in the catastrophe bond market, helping investors access reinsurance related risk and return in securitized form and cedents to access the capital markets, through acting as a risk transformer and facilitator for 144A cat bonds, private catastrophe bonds and other insurance-linked securities (ILS).
In 2022, Hannover Re’s Kaith Re vehicle had issued nine Seaside Re private catastrophe bonds tranches, totalling $108.5 million of risk transferred and securitized, as well as one LI Re private cat bond which transferred $15 million of California earthquake risk.