The Florida catastrophe bond sponsored by US insurer Allstate, which was thought to face a complete loss of principal following last year’s Hurricane Ian, has now had an extended maturity date, suggesting the insurer’s final loss from the event has not yet been reached. Final confirmation.
This is a $37.5 million Class C Note issued by Allstate’s Sanders Re III Ltd. (Series 2022-2) catastrophe bond, which at the time of issuance was one of the riskiest reinsurance layers the carrier had put in the capital markets in the form of cat bonds .
Hurricane Ian hit Florida in September 2022, and by late October, as we reported, it became clear that holders of this catastrophe bond could be at risk of total losses.
Additional points on the Class C notes are that Allstate’s subsidiary in Florida lost just $40 million, and the carrier reported a total loss of $671 million from Hurricane Ian, said to be down to $3.66 after an expected $305 With billions of dollars in reinsurance recoveries, it seems safe to assume that this catastrophe bond will be part of it.
However, the notes were priced at next to nothing on the secondary pricing table of cat bond brokers, and now we understand that the notes have been granted an extension as they were due to mature on June 7 this year.
The Series C 2022-2 catastrophe bond notes issued by Sanders Re III have now reset their maturities to June 2026, a full three-year extension, as the reinsurance call has not yet been made.
On all the cat bond pricing tables we’ve seen, the full $37.5 million of notes are still listed as outstanding, indicating that recovery has not yet been requested, so Allstate’s ultimate losses must still be in the wake of Hurricane Ian.
This helps to emphasize the importance of the rollover feature and retaining collateral, which is allowed for sponsors, as the notes are so cheaply priced that anyone would consider them a complete loss, but it will take time, Sponsors must be able to hold this capital to fund any reinsurance recoveries that eventually become due.
The good news for investors is that while that particularly risky tranche of notes has been rolled over, the next tranche of cat bonds in Allstate’s Florida Re towers at risk from Hurricane Ian has seen some price recovery recently.
The February 2022 Class B notes, previously priced as low as 50 cents on par, now appear to be down only 10% to 20%, meaning this segment is considered less risky, although some recovery can still be expected. The reason that part has not been extended is that it has a three-year term compared to the one-year term for the Category C tier.
We have these cat bonds at risk and many others in Our cat bond catalog defaults, triggers or is deemed to have additional risk.