Everest updates hurricane Ian cat bond recovery amount to $20m

Global insurance and reinsurance specialist Everest Group is now anticipating a $20 million recovery due to hurricane Ian from the industry loss based retrocessional protection available to it from its Kilimanjaro Re catastrophe bonds that appear triggered, Artemis can report.

Two of Everest’s outstanding Kilimanjaro Re catastrophe bonds have now been triggered after the industry loss estimate reported by Verisk’s PCS rose to above the level required to activate a reinsurance recovery under the terms of the deals, we understand.

But the estimated recovery, as these have yet to be finalised, has dropped in Everest’s view over the last quarter.

As we reported after the first-half, Everest said that its reported catastrophe losses in the quarter were “partially offset by $30 million of catastrophe bond recoveries related to Hurricane Ian.”

Everest actually has $350 million of catastrophe bond protection available to it for recoveries, in case the industry loss from hurricane Ian rises, as two tranches of its Kilimanjaro Re cat bond program attached at a PCS reported industry loss of $48.1 billion for hurricane Ian.

The reported industry loss remains at $48.4 billion, but now Everest says that its recoveries under the two Kilimanjaro Re tranches are just $20 million, rather than the $30 million it had estimated back at its mid-year results.

The $350 million of Kilimanjaro Re cat bonds that are exposed will cover any hurricane Ian loss creep on a pro-rata basis up to a $63.8 billion industry loss level.

At September 30th, Everest is now estimating the cat bond recovery to be $20 million.

We understand that the loss has been pegged at 6.76% of principal of each of the two exposed cat bond tranches, which are the $150 million Class A-1 notes from the Kilimanjaro III Re Ltd. (Series 2019-1) issuance and the $150 million Class A-2 tranche of the Kilimanjaro III Re Ltd. (Series 2019-2) issuance.

That equates to just under $10.14 million per tranche, so just over the estimated $20 million recovery.

The recovery is not finalised as the PCS industry loss estimate could still develop. Of course, that could develop higher or lower though, so a recovery is not yet assured.

But we’re told that cat bond investors have marked the notes down by a corresponding amount, to account for an expected loss of principal at this time.

With the potential to recover much more, should the industry loss escalate, Everest is well-protected by these cat bonds.

Details of catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in our cat bond losses Deal Directory here.