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Original Risk: A Society for Change Agents

Safepoint’s Manatee 2016-1 cat bond facing hurricane Irma loss


According to our sources, an event notice has been filed on behalf of Safepoint Insurance Company, the sponsor of the Manatee Re Ltd. (Series 2016-1) catastrophe bond, revealing the initial estimate of the insurers hurricane Irma losses that qualify under the terms of the cat bond and the level reported suggests a loss for the bonds holders.

We’re told that the event notice discloses a $100 million initial estimate of Safepoint’s hurricane Irma losses (that are relevant and qualify under the cat bond terms), which is sufficient to eat through the highest risk Class C tranche of Manatee Re 2016-1 cat bond notes.

The $20 million tranche of Series 2016-1 Class C notes issued by Manatee Re Ltd. secured Safepoint a particularly risky layer of reinsurance coverage, with an initial attachment probability of 14.28% and base expected loss of 10.32% at launch. Investors in the Class C notes were paid a 16.25% coupon at launch for holding this layer of the cat bond.

We highlighted this tranche of notes as particularly at risk in an article earlier this week.

We understand that the notes moved up Safepoint’s reinsurance tower slightly at the latest reset and the covered layer expanded a little, lowering the expected loss very slightly.

The Manatee Re 2016-1 cat bond provides Safepoint with collateralized reinsurance for losses from Florida and Louisiana named storms.

With hurricane Irma blowing through Florida as a major hurricane causing significant damage, the Manatee Re cat bonds were always going to be considered at risk and this tranche are the riskiest sponsored by Safepoint, an insurer with significant coastal exposure.

The Class C notes attach at $40 million of losses to Safepoint after the latest reset (initially they would have attached at $30m) and cover 50% of losses up to an $80 million exhaustion (initially this was up to $60m), we’re told.

With the loss estimate at $100 million it suggests this Class C tranche of Manatee Re 2016-1 notes is going to be a total loss, with investors likely to payout the $20 million to Safepoint as reinsurance, once the claim is finalised.

This is only the initial event notice estimate of losses from Safepoint though, so the figure could rise which may bring other layers of coverage including the Class A notes, which sit higher up in the reinsurance tower, into play as well. 

At the moment though it looks like the loss estimate is not high enough to bring the Class A tranche into play, but a privately placed reinsurance layer that sites alongside Safepoint’s FHCF coverage may be tapped as well and that could have ILS market participation.

So, as a result this is the first catastrophe bond that looks set for a loss due to the impact of hurricane Irma and it may not be the last.

The ILS investor base continues to watch a number of the riskiest layers of aggregate, industry-loss trigger retrocessional reinsurance cat bonds closely, as well as a few other riskier per-occurrence cat bonds sponsored by Floridian primary insurers.

It has to be stressed and reiterated that at this stage the event notice from Safepoint regarding its Manatee Re 2016-1 cat bond is preliminary, the estimate could rise significantly we would imagine as the impacts of hurricane Irma become clearer.

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