Covéa’s Hexagon III Re cat bond marked down on windstorm Ciarán exposure

As anticipated, the junior €53 million Hexagon III Re Pte. Ltd. (Series 2021-1) Class B tranche of notes from Covéa Group’s 2021 catastrophe bond issuance have now been marked down, as the market digests the threat posed by the insurers rising losses from November 2023’s European windstorm Ciarán.

Artemis reported last Friday that an event notice for windstorm Ciarán had been filed in relation to the Hexagon III Re Pte. catastrophe bond.

The event notice suggests a relatively strong chance that investors in the notes will be facing a loss of principal.

We were also told that a reduced interest spread was set to be paid across a portion of the tranche and that the potential erosion of principal to the notes could end up being around €11.2 million, based on the data currently available.

Covéa’s relevant ultimate net loss from the windstorm is said to be €48.7 million, so just slightly below the attachment point for the notes, but the expectation is that this will rise and growth factors could drive it higher still.

We said at the time, that it would therefore make sense to see the notes marked down around 20% or more in the cat bond secondary market pricing sheets on Friday, which had not been issued by the time of our article.

Now, we’re told the notes have been marked down as expected, with some secondary cat bond market pricing sheets having them priced for bids of between 57 and 70 cents on the dollar.

So the market has marked the Hexagon III Re Pte. Class B notes down by more than 20%, implying a cautious approach and that cat bond investors and fund managers are anticipating Covea’s ultimate net losses from windstorm Ciaran rising further into the attachment for its catastrophe bond backed reinsurance coverage.

Given where the notes have been marked at for bids on the secondary cat bond pricing sheets, it seems the market is discounting them by and preparing for a loss of principal in the range of 30% to 45%, or thereabouts, at this time.

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

You can read all about this Hexagon III Re Pte. Ltd. (Series 2021-1) catastrophe bond from Covea Group and every other cat bond transaction in our Deal Directory.