Hannover Re’s at-risk $50m Seaside Re 2017-3 cat bond extended again

The $50 million Seaside Re 2017-3 private catastrophe bond transaction, that was issued by German reinsurance firm Hannover Re’s segregated accounts vehicle, Kaith Re Ltd. on behalf of a client, has had its maturity date extended again as uncertainty over the impact of 2017 losses continues.

The private cat bond transaction was originally supposed to have matured in January of this year, but assumed exposure to the 2017 hurricanes and major catastrophe losses means that it is being kept on the hook for potential losses by the unknown sponsor of the deal to allow for loss development to continue.

The continued loss amplification and loss creep related to hurricanes from 2017 has resulted in numerous extensions of maturities for ILS contracts and catastrophe bonds, with it in many cases possible to extend for as much as 24 or even 36 months.

This allows a sponsor or beneficiary of the reinsurance or retrocessional coverage to hold the contract open until its own loss experience has fully crystallised and it can tell whether the instruments trigger has been breached and a payout is due.

This $50 million Seaside Re 2017-3 private cat bond was issued by Hannover Re’s reinsurance vehicle Kaith Re Ltd. in January 2017, as the segregated account Seaside Re was used to issue a single $50 million tranche of Series 2017-3 private catastrophe reinsurance risk exposed notes to ILS investors.

In January 2018 we first reported that the Series 2017-3 notes issued by Seaside Re had not been allowed to mature as scheduled, with maturity pushed back to allow for loss development and the maturity date was pushed back to June 30th 2018.

The maturity date was then extended once again, although not by particularly much, only to August 15th 2018. The fact it was pushed back a smaller amount suggested the loss may have been clarifying at that time.

However, now the notes maturity has been pushed back right to the end of this year, to December 31st, suggesting that plenty of uncertainty remains.

We have to assume that this private Seaside Re cat bond has some exposure to hurricane Irma and that the extensions are responses to the latest industry loss estimates being made by third-party providers of loss data such as PCS.

The Seaside Re private cat bond program provided investors with exposure to an unknown cedants U.S. property catastrophe reinsurance related risks, so it’s assumed that it faces potential losses from the major hurricanes of 2017. The fact the extensions continue suggests that this would be likely due to Irma, given the loss creep being seen, but possibly Harvey and Maria as well.

Often these private cat bond arrangements feature industry loss triggers and can be based on transformed ILW’s, so it could well be the latest updates from a data provider such as PCS that are causing the extension. Or even if indemnity based, the cedant may be basing its expectations of eventual losses on the creeping industry loss.

This $50 million Seaside Re 2017-3 tranche of notes was part of an issuance of a trio of Seaside Re 2017 private cat bonds and was the only tranche extended, suggesting it was the riskier of the three and hence requires more time to identify whether it has been triggered..

This Seaside Re 2017-3 private cat bond 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.