Gator Re losses near trigger, now over 94% of attachment point

Once again the latest loss report for the Gator Re Ltd. catastrophe bond transaction shows that qualifying losses have risen further, almost reaching the entire way through the cat bond’s aggregate retention layer, now over 94% of the way to the trigger attachment point.

With two months of the year and the Gator Re cat bond’s risk period still to go it looks increasingly likely that this catastrophe bond transaction could face a loss this year.

Qualifying aggregate losses have risen steadily in 2016, resulting in some price movements in the Gator Re cat bond. But after having recovered some of its price in the secondary market, this cat bond now looks likely to be treated as distressed, given it is now so close to the point where investors will face principal losses.

The latest estimated ultimate net loss report for Gator Re, which we understand from sources was distributed to investors yesterday, states that estimated qualifying losses now amount to $164,965,969, which is 94.27% of the way to the $175 million attachment point.

Estimated qualifying ultimate net losses for the sponsor, Florida primary insurance firm American Strategic Insurance, have risen steadily this year.

In April 2016 losses from severe thunderstorm risks, the covered peril for the Gator Re cat bond, had reached almost $122m. The figure rose by the end of June 2016 to $133.5m, then again to $148.6m, or 85% of the way to the attachment point by early September.

Losses due to thunderstorm, tornado and hail events continue to impact the covered portfolio of insurer American Strategic, it seems. Resulting in the further increase in qualifying estimated losses reaching almost $165 million, or 94% of the way to the attachment point by the end of October.

Should further severe thunderstorm related losses hit the insurer during the final two months of the year, the Gator Re cat bond and its investors could face an erosion of principal and corresponding losses.

Principal erosion will be faced by investors as qualifying losses creep above the $175 million trigger point, which the aggregate section of Gator Re had been reset to. Prior to the reset attachment point investors would have faced losses from $150 million of qualifying loss estimates.

A number of investors we have spoken with about Gator Re since the cat bond was issued expressed some concern for the way severe thunderstorm events are defined in the terms of the Gator Re cat bond. The event definition terms leave it to the ceding insurer to define whether an event qualifies or not, so do not use an official reporting agent (such as PCS or a meteorological agency).

Whether that could lead to questions in the future, should the cat bond be triggered, over the estimated loss figures remains to be seen.

Interestingly there has been no sign of any trades occurring up to yesterday, and the secondary price for the Gator Re cat bond notes remains as it has for the last month. However, with the loss estimate only being distributed yesterday it is possible that some trading activity emerges.

That said, it will take a speculative investor to buy the Gator Re notes, with losses only having a few million dollars left to rise until they face losses.

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Also read:

– Gator Re cat bond secondary price rises despite rising loss estimate.

– Gator Re cat bond qualifying losses now 85% of way to trigger.