Investors in RenaissanceRe’s insurance-linked securities (ILS) vehicle Fibonacci Re Ltd. have been able to redeem some more of their capital, while one tranche has now been allowed to fully mature and the other extended further.
RenaissanceRe, the Bermudian reinsurance firm and third-party capital manager, has been managing its Fibonacci Re Ltd. vehicle’s 2017 and 2018 noted as they faced potential catastrophe impacts, with regular extensions of maturity and some redemptions allowed, as clarity has emerged over whether any losses would be faced.
Now, the 2017 tranche of notes issued by Fibonacci Re have had their remaining principal redeemed and been allowed to mature, while the 2018 tranche of notes issued by the vehicle have seen another partial redemption but then an extension of maturity for their remaining principal.
Fibonacci Re is a sidecar-like special purpose reinsurance vehicle that RenRe designed to provide ILS investors and some of the ILS fund’s under its management with a source of catastrophe bond-like investments in property catastrophe and non-natural peril property risks.
The notes maturity dates were extended repeatedly, which is assumed to have been for the collateral to be held while losses from catastrophe events in prior years continued to develop.
As of the last update, there were just $23.3 million of notes from the two Fibonacci Re 2017 and 2018 tranches remaining.
The first tranche of ILS notes were issued at the January 2017 renewals by Fibonacci Re, a $140 million tranche of Series 2017-1 Class A participating ILS notes.
These notes were supposed to be on-risk for just one year, with maturity at January 10th 2018. But, after the 2017 hurricanes and other catastrophe events, while $136.7 million of the notes were allowed to mature at the scheduled time, the remaining $3.3 million of 2017-1 Class A outstanding notes were extended.
It later emerged that RenaissanceRe had also faced potential losses to the 2018 Series issuance from Fibonacci Re, so it allowed $50 million of the $70 million Fibonacci Re 2018-1 notes to mature at the scheduled time in January 2019, retained and extended $20 million of the notes through until April.
It’s still assumed that 2018 catastrophe losses were the main driver for the extensions of maturity and slow release of capital back to investors, with the wildfires in California possibly the deciding loss event that drove RenRe to retain the collateral from this issuance.
The notes had broad exposure to property risks, through shares in contracts written by RenRe for its third-party joint-venture vehicles, or perhaps quota shares with the parent, meaning Fibonacci Re likely had exposure to all of the natural catastrophe events that occurred over recent years.
Finally, the remaining $3 million of collateral held and extended from the Fibonacci Reinsurance Ltd. Series 2017-1 Class A notes appears to have been returned to its investors, as this tranche has now seen a full redemption and the notes have been de-listed from the Bermuda Stock Exchange (BSX).
At the same time, the 2018-1 tranche of notes that had $20 million of principal remaining and extended, have seen a partial redemption of $5 million, while the now remaining $15 million has been extended further again, this time until January 10th 2020.
It suggests that the 2018-1 tranche of Fibonacci Re ILS notes were the riskiest of those issued, with other tranches having now been redeemed.
It’s likely that as clarity has emerged over the losses, RenRe as manager of the vehicles and investor relationship has gradually been able to return chunks of capital, while retaining increasingly smaller amounts, now resulting in just $15 million of outstanding principal retained in case of any further loss development occurring and resulting an a loss payment coming due.
This is another sign that claims from prior year catastrophe events are increasingly being settled and so ultimate loss amounts are becoming clearer, allowing for trapped collateral to be released and redeemed by the original investors again.
That’s a good sign for the entire ILS market, showing the structures working as intended and that the recovery from prior year catastrophe events continues, in some cases with capital returned rather than lost.
It will be interesting to see whether RenaissanceRe returns to re-use its Fibonacci Re vehicle again in future, now these tranches are getting closer to being fully matured.
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