Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

XL’s Galileo Re 2015 cat bond deemed at risk of loss by investors


One of XL Catlin’s outstanding catastrophe bonds, the $300 million Galileo Re Ltd. (Series 2015-1), has been heavily discounted in trading by investors, as they look on the transaction as one of those deemed most at risk of loss due to the combined impacts of hurricane Harvey and Irma.

The Galileo Re 2015 catastrophe bond is an industry-loss trigger annual aggregate structure, so is exposed to the combined and aggregated impacts of both hurricanes Harvey and Irma.

It appears that the market has deemed this as one of the more at risk cat bonds in the wake of the storms, with the notes trading yesterday at a price of just 45 yesterday, down from its most recent previous trade at just over 100.

This is a particularly risky catastrophe bond. It had an initial attachment probability of 15.33% at launch in 2015 and an initial expected loss of 7.93%.

It covers U.S. named storm risks for XL Catlin and sister companies or subsidiaries, providing the group with reinsurance and retrocession for this and some other perils, using a PCS industry loss index trigger for hurricanes.

Looking at data we have on this cat bond, an industry loss from a U.S. hurricane of just over $20 billion could actually result in a 100% loss. With Harvey and Irma combined set to qualify there seems a very good chance of that now happening it seems.

Brokers are now pricing this bond down around 25 to 30 we are told and it’s not the only XL Catlin sponsored cat bond that the market deems at risk. A number of other tranches of Galileo Re and more recent Galilei Re cat bonds from XL are also priced down at this time on sheets the brokers supply to investors.

These cat bonds are all aggregate reinsurance covers and with now two major hurricanes in quick succession they are coming under the spotlight for ILS funds and investors as some of the most likely to face principal reduction.

For XL Catlin, if the cat bond triggers it will supply a useful source of reinsurance capital to help the firm better manage these hurricane loss events.

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