Loss reserve set up for Twelve Capital’s Dodeka XXI private cat bond

A loss reserve has been established for one of Zurich headquartered ILS and reinsurance fund manager Twelve Capital’s private Dodeka catastrophe bonds, after the transaction became exposed to potential losses from recent global catastrophe events.

The $17.96 million Dodeka XXI transaction was issued in March 2019, becoming the 24th private insurance-linked securities (ILS) transaction in the Dodeka series of deals issued for Twelve Capital.

The transaction saw Twelve Capital entering into a private collateralised reinsurance or retrocession arrangement with an unnamed ceding company, with the contract securitised using the Artex SAC Ltd. private cat bond and ILS issuance vehicle.

It’s now become apparent that this particular Dodeka XXI private cat bond has been exposed to the aggregation of major global catastrophe losses of recent months, in particular hurricane Dorian, typhoon Faxai and typhoon Hagibis.

The $17.96 million of Dodeka XXI cat bond notes are linked to a global non-marine catastrophe aggregate reinsurance treaty that incepted on March 1st 2019, which sounds like it is probably a retrocession cover for a counterparty of Twelve Capital.

Given where industry loss estimates and market data for recent global catastrophe events sit, including Dorian, Faxai and Hagibis, it has been deemed necessary to establish a loss reserve related to the underlying aggregate reinsurance contract.

The loss reserves have been set at roughly 8% of the limit it seems, which will write down the value of the investment to around 8% below the issuance price.

On that basis it seems that just under $1.44 million has been side-pocketed from this Dodeka XXI transaction in relation to these global catastrophe events, writing down the value of the transaction to approximately $16.53 million at this time.

Of course, there is no guarantee that this is precisely where the loss ends up, as it could be higher if any of the catastrophe losses develop significantly, or lower if the ceding companies ultimate loss ends up being lower than the current estimate.

Typically, an ILS fund manager like Twelve Capital will reserve as conservatively as it can without creating unnecessary drag on its investments. As a result there is usually some allowance for potential loss creep accounted for in the initial reserve that has been set.

We’ve added the Dodeka XXI private cat bond to our directory of catastrophe bonds that have defaulted or been considered at-risk of loss.