Progressive’s aggregate Bonanza Re zero-coupon cat bond recovers, returns capital

Qualifying aggregate catastrophe losses failed to reach the attachment point for one tranche of insurance group Progressive’s Bonanza Re Ltd. (Series 2023-1) catastrophe bond deal, meaning the zero-coupon one-year cat bond deal was allowed to mature and investors got their full capital back.

Progressive secured $65 million of one-year annual aggregate reinsurance from the Class B tranche of notes of this deal, which was issued in January 2023.

The Class B notes provided Progressive Home companies under the ARX Holding insurance brand, including American Strategic Insurance Group, with a one-year source of multi-peril aggregate reinsurance protection, covering aggregated losses from US named storm, earthquake, severe thunderstorm, winter storm, wildfire events.

The aggregate Class B notes had an attachment point of $600 million of qualifying losses and the notes featured a $5 million per-event deductible and each event could only contribute a maximum of $95 million of losses.

By September 2023, it was looking like these notes were aggregating qualifying losses at such a pace that a loss of principal to investors was beginning to get priced in.

Around that time, the Bonanza Re 2023-1 Class B notes had been marked down for bids of around 50 cents on the dollar, suggesting the market was anticipating a roughly 50% loss of this cat bond’s principal at that time.

By November 2023, the marking down had continued and the Class B zero-coupon notes had been marked as low as 20 cents, which given they were zero-coupon and came to market priced at 80% of principal suggested the market was beginning to anticipate a total loss for these cat bond notes.

But, the run-rate of aggregating catastrophe losses reported slowed and by December the secondary market pricing for these Bonanza Re 2023-1 Class B cat bond notes had begun to recover somewhat.

We understand that as we moved into 2024, the recovery had continued and the notes were marked back close to par by the time of their eventual maturity in early January, with no actual losses suffered, as the aggregate catastrophe loss tally had failed to reach the $600 million attachment point.

As a result, investors received their principal back in full during the month of January, we understand.

We’re told some cat bond fund managers had marked this bond for an expectation of a total loss, so the recovery was very welcome and helped boost January returns for some cat bond funds and portfolios.

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