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Hurricane Irma Poses a Risk to 13 Rated Catastrophe Bonds

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Hurricane Irma Poses a Risk to 13 Rated Catastrophe Bonds

On Sept. 7, 2017, S&P Global Ratings said that the following natural-catastrophe bonds could be at risk of triggering or incurring a reduction in the retention layer from Hurricane Irma. Our ratings on these issues remain unchanged.

  • $250 million Kilimanjaro Re Ltd. Series 2014-1 Class A notes ('BB-(sf)'): Hurricanes contribute 100% to the modeled annual expected loss. As of the most recent reset, Florida, Louisiana, South Carolina, and North Carolina contribute 92.2%, 2.3%, 1.9%, and 1.7%, respectively, to the modeled annual expected loss. The other states that contribute to the expected loss are Alabama, Mississippi, and Georgia, which make up the remaining 2%. Losses are calculated on a per-occurrence basis. The covered loss amount is based on insured industry losses. The attachment and exhaustion points are $1.501 billion and $2.342 billion, respectively. If this amount exceeds $68 billion in the covered area, a principal reduction could be expected.
  • $200 million Kilimanjaro Re Ltd. Series 2014-1 Class B notes ('BB-(sf)'): Hurricanes contribute 87.7% to the modeled annual expected loss. As of the most recent reset, Florida, Puerto Rico, Louisiana, Virginia, and Georgia contribute 37.9%, 6.2%, 3.6%, 3.1%, and 2.7%, respectively, to the modeled annual expected loss. Losses are calculated on an annual aggregate basis and the current risk period began on April 25. The covered loss amount is based on insured industry losses. We are awaiting information as to whether losses from Hurricane Harvey exceeded the franchise deductible of $110 million. The attachment and exhaustion points are $2 billion and $2.983 billion, respectively.
  • $70 million Residential Reinsurance 2013 Ltd. Series 2013-II Class 4 notes ('BB-(sf)'): Hurricanes contribute 82% to the modeled annual expected loss. Florida, the Mid-Atlantic, the Southeast, and the Gulf contribute 21%, 19%, 13%, and 4%, respectively, to the modeled annual expected loss. Losses are calculated on a per-occurrence basis. The attachment and exhaustion points are $2.285 billion and $3.212 billion, respectively.
  • $125 million Residential Reinsurance 2015 Ltd. Series 2015-II Class 3 notes ('B-(sf)'): Hurricanes contribute 81% to the modeled annual expected loss. Florida, the Mid-Atlantic, the Southeast, and the Gulf contribute 24%, 18%, 14%, and 5%, respectively, to the modeled annual expected loss. Losses are calculated on a per-occurrence basis. The attachment and exhaustion points are $1.559 billion and $2.285 billion, respectively.
  • $110 million Residential Reinsurance 2016 Ltd. Series 2016-I class 13 notes ('BB-(sf)'): Hurricanes contribute 76% to the modeled annual expected loss. The Southeast, the Mid-Atlantic, Florida, and the Gulf contribute 21%, 20%, 12%, and 6%, respectively, to the modeled annual expected loss. This is an annual aggregate transaction that covers severe thunderstorms and earthquakes (including fire following) as well. We are awaiting information as to whether losses from Hurricane Harvey exceeded the franchise deductible of $50 million. The attachment and exhaustion points are $2.050 billion and $3.065 billion, respectively.
  • $150 million Residential Reinsurance 2016 Ltd. Series 2016-II Class 3 notes, ('B-(sf)'): Hurricanes contribute 81% to the modeled annual expected loss. Florida, the Mid-Atlantic, the Southeast, and the Gulf contribute 24%, 18%, 14%, and 5%, respectively, to the modeled annual expected loss. Losses are calculated on a per-occurrence basis. The attachment and exhaustion points are $1.559 billion and $2.285 billion, respectively.
  • $170 million Residential Reinsurance 2016 Ltd. Series 2016-II class 4 notes ('B(sf)'): Hurricanes contribute 82% to the modeled annual expected loss. Florida, the Mid-Atlantic, the Southeast, and the Gulf contribute 22%, 19%, 13%, and 4%, respectively, to the modeled annual expected loss. Losses are calculated on a per-occurrence basis. The attachment and exhaustion points are $2.285 billion and $2.775 billion, respectively. $150 million Residential Reinsurance 2017 Ltd. Series 2017-I class 13 notes ('BB-(sf)'): Hurricanes contribute 76% to the modeled annual expected loss. The Southeast, the Mid-Atlantic, Florida, and the Gulf contribute 21%, 20%, 12%, and 6%, respectively, to the modeled annual expected loss. This is an annual aggregate transaction that covers severe thunderstorms and earthquakes (including fire following) as well. We are awaiting information as to whether losses from Hurricane Harvey exceeded the franchise deductible of $50 million. The attachment and exhaustion points are $2.050 billion and $3.065 billion, respectively.
  • $125 million Tradewynd Re Ltd. Series 2013-1 class 1 notes ('B+(sf)'): Hurricanes contribute 69% to the modeled annual expected loss. Florida, the mid-Atlantic, and Southeast contribute 63%, 7%, and 2%, respectively, to the modeled annual expected loss. There is some additional exposure in the Gulf and Caribbean that collectively contributes 1.4% to the modeled annual expected loss. Losses are calculated on a per-occurrence basis. The attachment and exhaustion points are $4.5 billion and $5 billion, respectively.
  • The four Horseshoe Re II issuances (all currently rated (BBB+(sf)) from segregated accounts LC1100, LC2100, CF5000, and FF5000 are also exposed to Hurricane Irma, but they all have very low attachment probabilities of 0.05%. U.S. hurricanes contribute between 60% and 83% to the modeled expected loss. The highest exposure in each segregated account is in Florida. All four issues provide protection on an annual aggregate basis, so even if they do not attach, we might see a reduction in the retention that could lead to a downgrade.

These bonds have the greatest exposure to Irma based on the current track. There are other bonds with relatively limited exposure to Hurricane Irma. The three 2014-1 Sanders Re Ltd. issuances each has approximately 20% (cumulative) contribution to the expected loss from the Gulf, mid-Atlantic, and Southeast, but have no exposure in Florida. The East Lane Re VI Ltd. issuances have almost all of their exposures north of Virginia. The percentages shown reflect the contribution attributable to hurricanes, not all the covered perils.