Everest extends cat bond maturity to cover potential hurricane Ian loss creep

Having begun reporting reinsurance recoveries from some of its Kilimanjaro Re catastrophe bonds, triggered by industry losses from hurricane Ian, global re/insurer Everest has now extended the maturity of one of the exposed layers of notes, to ensure the coverage remains available in case of any continued development.

As we’ve previously reported, two of Everest’s outstanding Kilimanjaro Re catastrophe bonds are assumed triggered after the industry loss estimate for hurricane Ian rose above the level required to activate a reinsurance recovery under the terms of the arrangements.

The recovery amounts had been estimated by Everest to at first be $30 million, as the company had said its reported catastrophe losses after the first-half of 2023 were “partially offset by $30 million of catastrophe bond recoveries related to Hurricane Ian.”

But, as at September 30th, when the next quarterly results were reported, Everest said it was then estimating the cat bond reinsurance recovery related to hurricane Ian to be slightly lower at $20 million.

Size of the recovery aside, as the industry loss total is not yet finalised, what’s important for Everest now is ensuring these cat bonds remain available to cover any loss development related to hurricane Ian.

If the reported industry loss rises further, it would activate a larger recovery for Everest under the terms of the cat bond tranches that have been deemed to be triggered.

Everest actually has $350 million of catastrophe bond protection available to it for recoveries, in case the industry loss from hurricane Ian rises.

Two tranches of Kilimanjaro Re cat bond notes are exposed, with the recovery pegged at September 30th 2023 to have been 6.76% of principal of each of the 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.

The only difference in those tranches is tenure, with the 2019-1 Class A-1 notes providing four years of reinsurance coverage to Everest, while the 2019-2 Class A-2 notes had a five year term.

The 2019-1 Class A-1 notes had been scheduled to mature in December 2023, but we’ve now learned that Everest opted to extend their maturity right the way out to January 8th 2027, a relatively long extension.

Which will ensure the coverage from these cat bond notes remains available to Everest, in case of any increase to the industry loss from hurricane Ian.

Over time, it’s possible we see some of the principal released, as it seems unlikely the industry loss from hurricane Ian could ever rise sufficiently to cause either tranche of notes to face a total loss.

As a result, there is a strong chance some of the capital will be returned to investors in time, as the quantum of the insurance market loss from hurricane Ian becomes clearer.

Meanwhile, the 2019-2 Class A-2 notes are still in-force until December 2024, so remain available to Everest for any additional reinsurance recoveries, should the hurricane Ian industry loss increase, without an extension of their maturity date for now.

The 2019-1 Class B-1 notes have now been allowed to mature, given they are deemed not at risk having a higher attachment.

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