S&P warns that Hurricane Matthew could trigger cat bonds

07-10-2016

S&P Global Ratings has warned that if Hurricane Matthew causes substantial losses off the East coast of the US, up to 15 catastrophe bonds could be triggered as a direct result.

The rating agency said it is monitoring developments and will take appropriate action should it become clear that the likelihood of the bonds defaulting has increased. Currently, its ratings on these bonds remain unchanged.

“Typically, we will wait for updates from the issuer and calculation agent of each issuance to determine whether the hurricane was a triggering event. If a cedant or issuer were to submit an event notice to the calculation agent, we would expect to put the ratings on the notes on CreditWatch with negative implications,” S&P said.

“If the contribution to the modeled expected loss from an area that could be impacted by Matthew (given its current projected course) was less than 1 percent, we did not include it.”

The bonds that could be triggered are: $1.5 billion of Everglades Re Ltd Series 2014-1 class A notes; $300 million of Everglades Re II Ltd. Series 2015-1 class A notes; $250 million of Kilimanjaro Re Ltd. Series 2014-1 class A notes; $200 million of Kilimanjaro Re Ltd. Series 2014-1 class B notes; $150 million of Mona Lisa Re Ltd. Series 2013-2 class B notes; $120 million of Mythen Re Ltd. Series 2012-2 class A notes; $80 million of Mythen Re Ltd. Series 2012-2 Class C notes; $155 million of Residential Reinsurance 2012 Ltd. Series 2012-II class 1 notes; $70 million of Residential Reinsurance 2012 Ltd. Series 2012-II class 2 notes; $95 million of Residential Reinsurance 2013 Ltd. Series 2013-I class 3 notes; $70 million of Residential Reinsurance 2013 Ltd. Series 2013-II class 4 notes; $125 million of Residential Reinsurance 2015 Ltd. Series 2015-II class 3 notes; $110 million of Residential Reinsurance 2016 Ltd. Series 2016-I class 13 notes; $95 million of Riverfront Re Ltd. Notes; and $125 million of Tradewynd Re Ltd. Series 2013-1 class 1 notes.

S&P also mentions that there are five further notes issued by Sanders Re Ltd with a small level of exposure to losses in Virginia, North Carolina, South Carolina, and Georgia. There is no exposure to Florida.

All the bonds listed above provide protection on a per occurrence basis except the Everglades Re, Everglades Re II, Kilimanjaro Re Class B, Mona Lisa Re, and Residential Reinsurance 2016 notes which provide coverage on an annual aggregate basis.

S&P Global Ratings, North America, Bermuda, Insurance, Reinsurance, Catastrophe bonds, Hurricane Matthew, Risk management

Bermuda Re