No significant insured loss from Cyclone Cleopatra’s impact on Sardinia

The Italian island of Sardinia was struck by a deep area of cyclonic low pressure, named Cyclone Cleopatra, in the early hours of the 19th November. An unusual occurrence for the Mediterranean, Cleopatra is not expected to create a significant insurance industry loss.

The Mediterranean region, as well as Europe as a whole, does not typically suffer cyclonic storms. A cyclonic storm is one which features an area of low pressure with rotating winds and is a rare occurrence in this part of the world. Cyclone Cleopatra’s main impact on Sardinia was rainfall, with over 440mm (17.3 inches) of rain falling in a 90 minute period. The resulting flooding has been responsible for around 18 deaths and widespread damage to property and infrastructure.

Insurance-linked securities and reinsurance-linked investment manager Twelve Capital provided an update on the cyclones impact. It said that the worst hit areas was Gallura, in the northeast of Sardinia. Flood waters raised river levels by as much as three metres, which resulted in a number of bridge collapses. The storm also caused extensive damage to agricultural infrastructure, as well as roads and properties. A large part of the city of Olbia, which has 55,000 residents, was under water with hundreds of people having been evacuated from homes. Twelve Capital said that more rain is expected which could create further damage to infrastructure.

The BBC Weather Centre said that the flooding was caused by a deep area of low pressure that has been sitting over the Mediterranean, bringing sustained heavy rainfall to the region. These unstable conditions are expected to move across Italy and further east, bringing further localised downpours as well as the threat of flooding, particularly in Venice. BBC weather forecasters said that the storm could move into the Adriatic and push a storm surge towards Venice, but at this time that has not occurred.

Twelve Capital said that Italy has the lowest property insurance penetration of the advanced markets in Europe, meaning that it would expect Sardinian insurance penetration rates to be broadly similar. With low insurance penetration, Twelve Capital does not expect  a significant loss for the insurance industry from cyclone Cleopatra.

Twelve Capital also notes that with no catastrophe bonds exposed to Italian natural perils it does not expect any impact to its Twelve ILS Fund.

Given the low-level of insurance penetration it is also unlikely that any collateralized reinsurance contracts would be particularly troubled by this event. However, if there are collateralized writers or ILS funds participating on any Italian insurance company reinsurance programmes there is the potential for some exposure should the industry loss prove to be greater than currently expected.