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As Jamaica awaits an official determination on a potential $150 million payout from its IBRD CAR Jamaica 2024 parametric catastrophe bond from Hurricane Melissa, ratings agency Fitch has said that it does not expect to see any adverse reaction from the insurance-linked securities (ILS) market as a result of the payout.
As we reported last week,
Jamaica’s IBRD CAR Jamaica 2024 parametric catastrophe bond notes were marked down to nearly zero by one pricing sheet team following Melissa’s landfall, while the Government of Jamaica had already activated the calculation agent process
In another article, we also explained that when a payout is made the funds that support Jamaica will be coming from across the globe, due to the broad distribution achieved through the initial issuance of the cat bond.
In its recent commentary on the event, Fitch said: “Hurricane Melissa will trigger the $150 million, International Bank for Reconstruction and Development (IBRD) Capital-at-Risk (CAR) Jamaica 2024 parametric catastrophe (cat) bond. This bond had an annual coupon of SOFR plus 7.19% and an initial attachment probability of 2.34%. This implies roughly a 1-in-45 year event to trigger a loss. Holders of the note (15 in total) were split 66% to specialized insurance-lined securities (ILS) fund managers and 33% to asset managers.”
The agency also explained that it “does not expect any adverse ILS market reaction to this cat bond payout,” while also expressing that cat bond investors are aware of the principal loss risk.
It’s important to remember, that the country’s $150 million IBRD CAR Jamaica 2024 parametric catastrophe bond is relatively small within the global ILS market, so even a full payout should not materially impact investor sentiment.
In addition, Fitch also said that it expects minimal disruption to the global re/insurance sector from Hurricane Melissa, despite its potential severity and impact on the country’s economy.
“Insured losses are estimated to be in the single digit billion-dollar range, with economic losses to the island several multiples higher. We expect more clarity once damage assessments and reports are made next week,” the agency explained.
The agency also confirmed that it does not expect any rating implications for the global rated insurance portfolio, while also noting that reinsurers are likely to pay a higher amount of insured losses, while highlighting that the losses are anticipated to be an earnings issue rather than a capital event.
According to Fitch, commercial property and business interruption losses tied to high-end resorts near Montego Bay are expected to be the largest contributors to the insured losses from the event, due to the capital of Kingston being spared from hurricane winds.
Ratings agency AM Best also recently noted that, given insurers in the Caribbean region, and particularly those covering risks in Jamaica, tend to be heavily reliant on reinsurance, a meaningful proportion of the insurance industry loss from the event is likely to fall towards reinsurance capital providers.
Also read:
– Hurricane Melissa crosses Jamaica cat bond parametric boxes at 892mb, 100% payout likely.
– Hurricane Melissa losses in Jamaica likely to fall to reinsurers, says AM Best. BMS suggests $5bn+.
– Melissa insured impacts in the billions. Jamaica cat bond full loss most likely: Twelve Securis.
– Jamaica’s cat bond “doing what it was designed to do” – Lefferdink, Aon Securities.
– Hurricane Melissa estimated single-digit billion insured loss. Cat bond payout likely: Aon.
– Jamaica cat bond marked near zero after Melissa landfall. Calculation process underway.
– World Bank says Jamaica catastrophe bond payout “likely” for hurricane Melissa
No adverse ILS market reaction expected from Melissa cat bond payout: Fitch was published by: www.Artemis.bm
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