Severe thunderstorm cat bonds triggered, result in total losses for investors: AM Best

The first catastrophe bonds issued to cover severe thunderstorms alone have been triggered, resulting in total losses for investors, A.M. Best reported.Asha Attoh-Okine, managing senior financial analyst of insurance-linked securities for A.M. Best Co., told BestWeek the poor result clouds the fate of similar transactions in the future.Two cat bonds issued under Mariah Re Ltd. have been triggered, and may lead to $200 million being released to American Family Mutual Insurance Co.One cat bond for $100 million provided excess-of-loss reinsurance coverage over $725 million. A second, rated cat bond for another $100 million provided excess-of-loss reinsurance coverage over $825 million. Both cat bonds provided protection on an annual aggregate basis over a three-year risk period but were triggered in their first year, A.M. Best’s BestWeek said.”If another severe thunderstorm-only cat bond comes to the market, investors may expect a higher return due to the higher perceived risk,” Attoh-Okine said. “A more likely scenario might be the next time severe thunderstorm risk is covered by a cat bond, the bond would also include other perils.”