Catastrophe Bonds Face Mounting Losses as Hurricane Ian's Impact Lingers

The insurance industry is grappling with the ongoing fallout from Hurricane Ian, as two more catastrophe bonds exposed to potential losses from the storm have been marked down further on secondary pricing sheets. This development comes as American Integrity, a primary insurer, has increased its estimate for the storm's impact, underscoring the risk of loss creep from prior-year events.

Uncovering the Ripple Effects of Hurricane Ian's Aftermath

Integrity Re Catastrophe Bonds Face Deteriorating Outlook

The Integrity Re catastrophe bonds, which were previously reported on in January 2024, have seen their outlook deteriorate further as American Integrity has released an updated estimate for ultimate net losses from Hurricane Ian. The quantum of losses expected from the hurricane has risen again, demonstrating the ongoing challenge of managing the risk of loss creep.The Hestia Re Ltd. (Series 2022-1) catastrophe bond, sponsored by Kin Insurance, has also been marked down, with the sponsor citing new litigation tactics in Florida as a driver of rising claims amounts. This highlights the complex and evolving claims environment in the state, which continues to pose challenges for insurers and reinsurers.

American Integrity's Increasing Loss Estimate

The reason for American Integrity's rising estimate of losses is not entirely clear, but it is possible that the company has experienced similar loss creep driven by the claims environment in Florida. Despite the property insurance reforms enacted in the state, the claims landscape appears to still be in flux, creating uncertainty and potential for further loss development.The two partially marked-down Integrity Re Ltd. catastrophe bonds have now been marked down further, as the ultimate net loss (UNL) reported by the sponsor has risen. This underscores the ongoing challenges faced by the insurance industry in accurately estimating and managing the financial impact of major catastrophic events.

Integrity Re Catastrophe Bonds Face Potential Total Losses

The Integrity Re II Pte. Ltd. (Series 2020-1) issuance, which was already considered the most at-risk cat bond sponsored by American Integrity, has been marked down further, and the market still anticipates a total loss for these notes.Similarly, the $50 million Integrity Re Ltd. (Series 2019-1) Class A issuance, which had been marked down to around bids of 50 in January and then to bids of around 20 last month, has now seen its price reduced further, with some pricing sheets marking them almost to zero. This suggests that the market believes a total loss of principal is increasingly likely.

Ongoing Uncertainty and Potential for Further Loss Creep

The $75 million Integrity Re Ltd. (Series 2022-1) cat bond notes, which had been marked down for bids as low as 80 back in January and then as low as 50 by August, have now been marked down even further, with some pricing sheets indicating bids as low as 10 to 20 cents on the dollar.The market's aggressive pricing of these notes suggests that additional loss creep is thought likely, even though the latest UNL estimate from American Integrity may not fully reflect the extent of the potential losses. This ongoing uncertainty highlights the challenges faced by the insurance industry in accurately assessing and managing the financial impact of major catastrophic events.To mitigate the risk of loss creep, American Integrity has opted to extend the maturity dates for the two Integrity Re cat bonds out to 2028, providing more time for the final losses to be understood. This move aims to ensure that the cat bond-backed reinsurance protection remains available to the sponsor as its Hurricane Ian loss is finalized.The details of these catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in the Artemis Cat Bond Losses Deal Directory, which serves as a valuable resource for industry participants and investors.