Investment manager Twelve Capital says the impact of Hurricane Ian is likely to result in losses for some Florida-focused Catastrophe Compensation Bonds, as well as some of the FloodSmart Re series of cat cat bonds. NFIP.
In an update released Thursday, Twelve Capital, the Zurich-based insurance-linked securities (ILS) and reinsurance fund manager, predicts losses for the catastrophe bond market.
Fund manager ILS said it believes cat bond losses are likely, but the extent will depend on how much the insurance and reinsurance market-wide loss from the hurricane might have. .
Twelve Capital said: “Initial estimates of industry losses for this event are in the range of $30 billion to $80 billion, but that will only become clearer in the days and weeks to come. as damage reports begin to come in.”
Highlighting the additional uncertainty related to the possible loss of industry given a second landfall is expected for Hurricane Ian.
Twelve Capital added: “Given that this is still an active storm, there is uncertainty as to what could happen next, as current forecasts indicate that Ian is weakening into a tropical storm. and heading north, a Category 1-2 storm may remain. as it moves near Orlando, Florida or potentially to strengthen in the Atlantic and make a second touchdown in the Carolinas.
The investment manager moved on to the repercussions he expects the catastrophe bond market will suffer following the damage caused by Hurricane Ian in Florida.
“In terms of impact, this is likely to result in losses for Florida Catastrophe Compensation Bonds, as well as Floodsmart Bonds issued by the NFIP,” Twelve Capital explained.
There are many Florida indemnification cat obligations on display, some from state-domiciled carriers, some from domestic carriers, as we previously explained here.
The lowest FloodSmart Re cat bonds would be between $5 billion and $5.5 billion in NFIP losses from a named storm event, such as Hurricane Ian.
Meanwhile, the private reinsurance layer of the NFIP attaches to $4 billion, which would begin to be paid out first, which means that if Twelve Capital is right and the FloodSmart Re program is settled for losses, the same goes for the traditional NFIP reinsurance tower.
On the Cat FloodSmart Re bond series, which provides reinsurance to FEMA’s National Flood Insurance Program (NFIP), one had already traded at a discount, as we reported earlier this week.
But Twelve Capital also noted the potential for a broader cat bond market loss, should the industry’s eventual loss from Hurricane Ian move higher in the range.
“Indexed catastrophe bonds will be much more dependent on the overall loss – there could be a very limited impact if the event stays below $50 billion, an impact between $50 billion and $75 billion, and if the loss increases to Beyond that, there would be a greater number of indexed bonds at risk,” the investment manager said.
It will be some time before any clarity on the fate of index-triggered catastrophic bonds, thus those based on reported industry losses, is available as official estimates are slow to be delivered.
Therefore, this uncertainty is what could lead to a particularly widespread drop in secondary cat bond price sheets at the end of the day, as we explained in this article yesterday.
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– Hurricane Ian: A rapid weakening could lead to losses closer to $32.5 billion, according to KBW.