AM Best

Best’s Briefing: Hurricane Irma to Test Catastrophe Bond Market

 Asha Attoh-Okine
Associate Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5716

Emmanuel Modu
Managing Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5356
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - SEPTEMBER 12, 2017 02:06 PM (EDT)
A new analysis by A.M. Best indicates approximately USD 12.5 billion of 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 current catastrophe bond market exists primarily to provide reinsurance for catastrophic events such as Hurricane Irma. The recent growth of this segment has contributed to an abundance of reinsurance capacity over the past five years, but an active hurricane season could affect investors’ future appetite for this segment.

According to a new Best’s Briefing, 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 USD 2.5 billion as of June 30, 2017. 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 USD 10 billion of Florida exposures. For catastrophe bonds to trigger, an insurer typically must first reach their own retention level and exhaust protection from private reinsurers and the Florida Hurricane Catastrophe Fund to the attachment level associated with each catastrophe bond.

“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,” said Asha Attoh-Okine, associate director, A.M. Best.

In the event that extensive insured losses result from Hurricane Irma, A.M. Best believes the industry will be faced with the following questions that could alter the catastrophe bond landscape: will convergence capital contract?; will insurance-linked securities fund managers continue their active participation in the primary insurance market?; and what impact might this event have on catastrophe bond spreads and the secondary market for catastrophe bonds?

To access a copy of this special report, please visit .

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.