hurricane Patricia 2015

It is now official, investors in the $100m tranche of MultiCat Mexico Ltd. (Series 2012-1) Class C catastrophe bond notes are facing a 50% loss of principal after calculation agent AIR Worldwide delivered its final report on the matter.

One of the key elements of any catastrophe bond trigger needs to be a transparent, rapid and fair payout process. This is especially true for parametric of index triggers, where a third-party may be reporting data on which decisions over losses are made.

The $100m of still outstanding catastrophe bond notes from the loss-facing MultiCat Mexico Ltd. (Series 2012-1) Class C cat bond deal have been priced by brokers back at around the 50 cents on the dollar mark, reflecting the increasing likelihood that the tranche only faces a 50% default.

The U.S. National Hurricane Center (NHC) has finally delivered its final tropical cyclone report for hurricane Patricia, putting the minimum central pressure of the storm at 932mb at landfall on the Mexican coast, suggesting the MultiCat Mexico Ltd. (Series 2012-1) Class C catastrophe bond notes face at least a 50% loss.

Uncertainty is still the order of the day when it comes to the size of the loss faced by investors in the $100m Class C tranche of the MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond due to the impact of hurricane Patricia.

Speculative investors have been buying some of the at risk $100m Class C tranche of the MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond at very low prices, likely hoping that the event report reveals that hurricane Patricia only caused a 50% loss of principal, which could allow them to profit.

S&P has downgraded the rating of the $100m Class C tranche of the MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond, on the expectation that unless there is a significant change to the reported minimum central pressure figures for hurricane Patricia, “a default appears to be inevitable.”

Recordings of the minimum central pressure of hurricane Patricia, taken just a little way inland from the landfall location in Mexico by a storm chaser, look likely to sustain the uncertainty over the level of loss faced by catastrophe bond investors.

If a storm as intense as hurricane Patricia struck downtown Miami, Florida, insured losses could reach $200 billion, according to Karen Clark & Company (KCC), highlighting a growing need for insurance-linked securities (ILS) to supplement traditional reinsurance for peak U.S. exposures.

The $100m tranche of notes from the MultiCat Mexico Ltd. (Series 2012-1) Class C catastrophe bond, which are exposed to a loss due to recent hurricane Patricia’s impact on Mexico, have now been placed on CreditWatch with negative implications by S&P.