Hurricane Ike round up

by Artemis on September 17, 2008

I’ve been away for a weeks leave so apologies for the blog going quiet. Hopefully you will have managed to keep up to date through the Artemis news page which is constantly updated as news hits the wires. I’m playing catch-up on the happenings in the past week and of course the major story as far as catastrophes (and cat bonds) go was Hurricane Ike.

Ike hit the Texas coast as a major hurricane with sustained winds in excess of 100mph. Coastal areas such as Galveston were the worst hit although flooding was widespread on the Texas and Louisiana coastlines. Houston was also hit badly with much damage sustained.

Damage estimates from risk modeling firms range from as low as $6 billion up to as much as $18 billion although that could still rise further as the damage has been so widespread (with damage inflicted as far as 200 miles inland from the coast).

As Ike approached, the Swiss Re Cat Bond Total Return Index fell for the second week in a row. Trading in live cat securities was brisk as people tried to cover themselves if they felt overexposed in Texas.

A number of catastrophe bonds are exposed to Texas windstorms, the most recent of which is Allstates Willow Re Ltd. At the time of writing no announcements of bonds being triggered have been made. Standard & Poor’s have said that while the loss estimates remain under $18 billion it’s looking unlikely that any will be triggered but should that rise significantly then this may change. We will be sure to let you know if anything occurs.

It’s looking likely that the Texas government could end up being responsible for a sizable amount of claims as the estimated damages from the storm far outweigh the provision set aside by the Texas Insurance Pool.

The Caribbean Catastrophe Risk Insurance Facility was triggered for the first time this year by Ike. The facility will payout $6.3m to the Turks & Caicos Islands. The amount was calculated based on the parametric formula used by the windstorm pool. As with all CCRIF claims the final payout will be made 14 days after the storm.

Ike will cause a significant dent in insurers capital, and although not the market changing event it could have been, add it to the previous storms, hurricanes to come and other natural disasters this year such as fires and 2008 is looking to be a hefty year of natural hazard losses. This could cause insurers to look to the capital markets with renewed vigour in months to come as they seek to find ways to bolster their finances and protect their balance sheets.

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