Allstate’s Florida cat bond facing hurricane Ian loss has maturity extended

The one Florida focused catastrophe bond sponsored by US insurer Allstate that is considered facing a complete loss of principal after last year’s hurricane Ian has now had its maturity date extended, suggesting the insurers’ ultimate loss for the event has yet to be finalised.

This is the $37.5 million Class C tranche of notes from Allstate’s Sanders Re III Ltd. (Series 2022-2) catastrophe bond, which at the time of issuance was one of the riskiest layers of reinsurance the carrier had ever placed into the capital markets in cat bond form.

Hurricane Ian struck Florida in September 2022 and by late October, as we reported, it had become clear that holders of this tranche of catastrophe bond notes were likely at-risk of suffering a total loss.

The Class C tranche of notes had an attachment point at just $40 million of losses to Allstate’s subsidiaries in Florida and with the carrier having reported a gross loss of $671 million from hurricane Ian, which it said would be reduced to $366 million after an expected $305 million in reinsurance recoveries, it seemed safe to assume that this cat bond would be part of that.

But, these notes remain marked down at almost zero in cat bond broker secondary pricing sheets and now we’ve learned that a maturity extension has been approved for the notes, as they had been scheduled to mature on June 7th this year.

Because the reinsurance recovery has yet to be made, the Class C Series 2022-2 catastrophe bond notes issued by Sanders Re III have now had their maturity date reset to June 2026, a full three year extension.

The full $37.5 million of notes are still listed as outstanding on all cat bond pricing sheets we’ve seen, suggesting the recovery has yet to be claimed, so Allstate’s ultimate loss must still be in-development from hurricane Ian.

Which helps to drive home the importance of the extension feature and the retention of collateral this allows, for sponsors, as these notes were so low down that anyone would believe they were a total loss, but this takes time and 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 this particularly risky tranche of notes have been extended, the next cat bond tranche at-risk from hurricane Ian in Allstate’s Florida reinsurance tower has seen some price recovery of late.

The 2022-2 Class B notes had been marked down for bids as low as 50 cents on the dollar before, but now appear to only be marked down between 10% and 20%, implying the risk to this tranche is considered lower, although some recoveries may still be anticipated. The reason this tranche hasn’t been extended yet is that it has a three-year term, compared to the one-year duration Class C layer.

We’ve these at-risk catastrophe bonds and many others listed in our directory of cat bonds defaulted, triggered or deemed at-risk of attaching.