S&P said the 16 bonds came from six series -- Ibis Re Ltd, Lodestone Re Ltd, Montana Re Ltd, Foundation Re III Ltd, Longpoint Re II Ltd and Calabash Re III Ltd -- that cover U.S. hurricane risk and are based on older models from RMS. I
RMS published major changes to its U.S. hurricane model in February. S&P said the changes in the model were significant enough to prompt a review. Completion of the ratings review is expected by the end of May, and the results could be substantial.
The changes to the model could produce some or all of the following effects:
• Loss estimates are expected to increase for all return periods.
• Losses on commercial exposures are increasing more than on residential.
• Losses in Florida show smaller increases than in other regions, losses in Texas increase the most, and losses in other states increase in varying degrees.
"We expect any rating actions to be between one and three notches, though it is possible for changes to be greater or for there to be no change," S&P said in a statement. All 16 bonds were already rated below investment grade. Five catastrophe bonds totaling $1.05 billion have been issued so far this year -- all covering U.S. hurricane risk as part or all of their risk portfolio. None of the five investors have used the RMS model in crafting their bonds.