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Hurricane Irma will test cat bonds: Best

Posted On: Sep. 13, 2017 8:58 AM CST

Around $12.5 billion in catastrophe bond value is exposed to losses from Hurricane Irma, says a report from A.M. Best Co. Inc. released Tuesday.

According to a new Best briefing, “Hurricane Irma’s Potential Impact on Catastrophe Bonds Exposed to Florida,” this includes potential exposure to catastrophe bonds sponsored by Florida-domiciled insurers, Florida-only subsidiaries of major writers, reinsurers and national primary carriers now face Hurricane Irma losses.

“The abundance of capacity in the Florida property catastrophe market that over the past five years, despite a decline in rate-on-line driven by a benign loss environment and alternative capital providers, will be tested by Hurricane Irma,” the Oldwick, New Jersey-based rating agency said in its briefing.

Of the $24.7 billion catastrophe bonds outstanding as of June 30, 2017, approximately $12.5 billion covers U.S.-named storm or wind peril as one of the covered perils that could impact Florida, according to Best.

There are 29 tranches of outstanding catastrophe bonds that are sponsored by Florida-domiciled insurers and Florida-only subsidiaries of major writers, with a total value of approximately $2.5 billion as of June 30, 2017, said Best.

Another 33 catastrophe bonds with U.S. wind-related perils or U.S.-named storms as part of the perils cover, sponsored by reinsurers and national writers, comprise the remaining $10 billion of Florida exposures.

The insurance industry may look differently on the catastrophe bond space if Irma leads to extensive insured losses, Best said.

“One potential impact that might emerge is a change in behavior of traditional reinsurers and the use of alternative capital instruments, including catastrophe bonds, collateralized reinsurance programs, sidecar vehicles and insurance-linked securities (ILS) funds,” Asha Attoh-Okine, associate director with Best, said in a statement.