Rating agency Moody's could downgrade cat bond after sponsor's heavy Ike claims

Rating agency Moody's has placed Nelson Re Ltd.'s Class G Notes on review for possible downgrade.

The reason for the review is that Glacier Re has incurred approximately $100m of gross claims related to Hurricane Ike. This is an upward revision from the $65m initially reported in November 2008. Glacier Re is currently evaluating the extent to which it has reinsurance protection for these losses, including any potential loss payment obligation from Nelson Re under the Class G Reinsurance Agreement.

Moody's said its review will focus on the degree of certainty around Glacier Re's loss estimates, what portion of losses qualify as Subject Business (as deemed by Glacier Re), and what Loss Adjustment Factors will be applied to subject losses. The Loss Adjustment Factors can differ by state.

Moody's noted that Hurricane Ike's complex footprint will likely complicate the loss settlement process for all reinsurers.

Hurricane Ike has caused losses in nine states ranging from Texas to Pennsylvania. Various sources estimate that onshore insured losses could range as high as $18bn and offshore losses could be as high as $6bn.

The Nelson Re notes were issued in June 2008 as a way for noteholders to provide excess-of-loss reinsurance to sponsor Glacier Re for U.S. hurricane or U.S. earthquake events. They are currently rated B3 by Moody's.