Everest trims hurricane Ian cat bond recovery expectation

Having previously begun reporting an estimation it would receive up to $30 million in reinsurance recoveries from its Kilimanjaro Re catastrophe bond program, after a deal was triggered by rising industry losses from hurricane Ian, we understand global re/insurer Everest has now trimmed back its recovery expectation significantly given a reduction in the industry estimate.

As we’d reported, two of Everest’s outstanding Kilimanjaro Re catastrophe bonds had been 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 retro reinsurance arrangements.

The recovery amounts had been at first estimated by Everest to be $30 million, as the company explained that 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.

Now, in the Everest annual report, it is disclosed that “The potential recovery under the CAT Bond is not expected to be material,” as a result of which Everest has not included any recovery expectation in its 2023 annual results.

The Everest annual report notes that $350 million of its catastrophe bond protection attaches at a $48.1 billion Property Claims Services (PCS) industry loss threshold, offering a chance of a pro-rata recovery up to a $63.8 billion PCS industry loss level.

Now, for 2022’s hurricane Ian, PCS’s industry estimate fell to $48.2 billion in February 2024.

Which still exceeds the attachment point, but indicates a minor reinsurance recovery only.

When Everest had been expecting the larger recovery amount, it was based on the PCS estimate being $49.4 billion and that had fallen to $48.4 billion at the time Everest reported its recovery estimation from the cat bonds had been reduced, after its Q3 2023 results.

We’re told that some insurance carriers have been increasing their estimates of ultimate losses from hurricane Ian, so there is no guarantee the PCS estimate remains as low as it had fallen in February, which means there is still a good chance Everest’s recovery under the cat bonds may increase before the industry loss estimate is finalised.

As a reminder, Everest 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 later learned that Everest opted to extend their maturity right the way out to January 8th 2027, a relatively long extension.

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

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