The maturity dates for both tranches of Safepoint Insurance Company’s most recently sponsored catastrophe bond, the $40 million Manatee Re III Pte. Ltd. (Series 2019-1) transaction, have now been extended as claims development continues, we understand.
The two tranches of the Manatee Re III catastrophe bond had previously been marked down significantly in the secondary cat bond market, because of the understanding they faced potential losses of principal after the impact of hurricane Ida in September 2021.
Safepoint’s two tranches of Manatee Re III cat bond notes provide it with collateralised reinsurance cover against losses from US named storms and severe thunderstorms across the states of Florida, Louisiana, New Jersey & Texas.
Following the landfall of hurricane Ida in Louisiana at the start of September last year, both tranches of notes had been marked down in the secondary market as one of the exposed bonds seen most at-risk of losses.
Both of the tranches of notes were only marked down around 20% to begin, implying uncertainty in the cat bond market over how significant any reinsurance recovery Safepoint would make could be from hurricane Ida.
But by mid-November, as we reported at the time, it became clear that the market had lifted its expectations of losses to the Manatee Re III cat bonds, with one tranche marked down as likely to face a total loss, the riskier Class B notes, while the other Class A tranche was marked down for losses of 75% to 85% of principal.
To be honest, not much has changed since then and right now, the latest cat bond broker pricing we’ve seen still has the Class A tranche marked at between 15 and 25 cents on the dollar, while the riskier Class B notes are marked down at 1 or 2 cents and have even been removed from pricing sheets by some broker dealers (a clear sign this tranche will pay out in full).
But both tranches were due to mature in early July 2022 and it seems there won’t be a resolution of the final loss of principal before that, so now we’re told the maturity date has been extended by almost four years, from July 7th 2022 to now stand at June 8th 2026.
That’s a particularly long extension of maturity, which could imply the Class A notes will take a long while to see any loss finalised.
As a reminder, both tranches of notes issued under the Manatee Re III cat bond provide Safepoint with $20 million each of per-occurrence indemnity reinsurance protection.
The less risky Class A notes have an expected loss of 1.15%, while the Class B layer had an initial expected loss of 4.23% at issuance.
It still looks like the majority of the $40 million of principal will be recovered by Safepoint under its reinsurance agreement, with likely the full $20 million of the Class B layer set to be recovered, or perhaps even already having been recovered by the insurer.
The Class A notes remain less certain, as with secondary marks suggesting a between 75% and 85% loss of principal currently, Safepoint may wait out further claims development from hurricane Ida to see if that increases. Hence the long extension of maturity could be a sensible move for the sponsor.
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