Windstorm Xynthia hammers France; no initial impact to catastrophe bonds expected

by Artemis on March 2, 2010

Windstorm Xynthia tracked across northern France and into Germany on Saturday 27th and Sunday 28th February. Wind speeds recorded reached as much as 30 meters per second and a tidal surge (which coincided with spring tides) impacted the French Atlantic coast causing major damage and flooding. 50 people have been confirmed killed due to the storm and thousands are homeless along the French Atlantic coast which was the worst impacted area.

Estimates of insured losses were initially high, with some reports stating that windstorm Xynthia would cause as much (if not more) insured losses as last year’s European windstorm Klaus. Now some of those estimates are being lowered by experts and risk modelling firms as more accurate data and wind-speed analysis becomes available.

Over €1.25B of catastrophe bonds have exposure to European windstorms which at first made investors nervous. Now with the lowered estimates (estimates that will be firmed up and made more public in the coming days) investors have breathed a sigh of relief.

However, while it’s highly unlikely that the losses resulting from windstorm Xynthia could directly trigger any European windstorm catastrophe bonds the storm could contribute to losses suffered by cat bonds which aggregate losses from a number of different regions. That won’t be known until later in the life of those cat bonds this year.

Once again, a European windstorm has demonstrated that Europe is just as at risk of major losses from winds as the U.S. and hurricane prone areas. This gives a timely reminder to investors that no catastrophe linked investment is 100% safe and to cedents that perhaps hedging your windstorm risks in Europe with the capital markets is a very good idea.

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