Storms Cut Into Combine Re Rating

Chris Westfall
Chris Westfall

Combine Re — at $200 million catastrophe bond hailed by market participants for its unique way of blending issuers and risks — was downgraded Monday after loss reports cut into a tranche of the program.

Moody’s cut the rating on Combine Re’s $50 million Class B notes from B1 from Ba3, a single notch downgrade. The rating agency left the rating on the bond’s $100 million Class A notes at Baa1. The bond’s $50 million Class C were issued without a rating.

The downgrade was prompted by losses reported by Country Mutual Insurance, one of Combine Re’s two sponsors. Moody’s said that the aggregated estimated loss reported by Country Mutual from severe thunderstorms between April and July of this year totaled $110.3 million, increasing the risk that the bond could reach its attachment level of $300 million or exhaustion level of $411.11 million.

“Although the estimated ultimate net losses are not expected to reach the attachment point for the Class B Notes, they have effectively reduced the first loss layer protection and have increased the likelihood of losses for the Class B Notes in what remains of the first risk period,” Moody’s said in note issued Monday.

The rating agency said that any net losses reported by Country Mutual that exceeds $10.7 million “may result in further downgrade of the Class B Notes’ rating,” although the note added that the bond could be upgraded it escapes the risk period without reporting a net loss since it contains a “reset” provision.

Combine Re was jumped into the market last year as co-sponsors Country Mutual and North Carolina Farm Bureau Mutual Insurance Company executed the first cat bond to “combine” the risks of two issuers against U.S. thunderstorm, hurricane, earthquake and winter storm.

Swiss Re acted as bookrunner on the deal.

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