ILS fund managers expect no cat bond impact from windstorm Xaver

by Artemis on December 10, 2013

Two insurance-linked securities (ILS) investment management firms have provided updates stating that they do not expect any impact to catastrophe bonds from last week European windstorm Xaver.

Windstorm Xaver tore through Northern Europe last last week, impacting the UK, Denmark, Germany, Norway, Sweden and Poland with hurricane force winds and a storm surge which coincided with high tides. Despite the strength of Xaver’s winds, with a gust measured at 142mph on high ground in Scotland, as well as the additional damage created by storm surge flooding, Xaver will not cause a large enough insured loss to concern cat bond investors.

Swiss insurance-linked securities and catastrophe bond investment manager Plenum Investments said that flood defences had held up well and initial reports from European windstorm Xaver suggested that damages from the storm would not be as bad as anticipated. As a result Plenum said that it does not expect any of the European windstorm catastrophe bonds held in its Plenum Cat Bond Funds portfolio to be affected by Xaver.

Another Swiss ILS investment manager Twelve Capital said that the strongest winds from Xaver affected areas that are sparsely populated, leaving population centres such as London, Paris and Brussels, where insured exposures are much greater, largely untouched.

In its analysis of wind field measurements, Twelve Capital said that it believes that wind speeds were largely below the levels required to cause any major structural damage. Twelve Capital also reviewed a previous storm, European windstorm Anatol, which took a similar track to Xaver. Anatol had much higher winds than Xaver, but simulating losses for it showed that Xaver is very unlikely to reach the levels required to trigger any exposed catastrophe bonds.

Twelve Capital does not expect any cat bond positions in its portfolios will suffer a loss from Xaver.

A third ILS manager, which declined to be named, told Artemis that it was in agreement that Euro wind cat bonds would not be impacted by Xaver. However this manager did note that on top of other loss events in Europe this year, like the German hail event, Central European flooding and European windstorm Christian, Xaver had the potential to eat further into reinsurance layers of large programs where that layer is already exposed due to an aggregation of losses.

That could leave certain writers of collateralized reinsurance protection potentially exposed, which may include some ILS fund managers who write collateralized business, such as industry loss warrants (ILW’s) or private covers. Whether Xaver impacts any of these markets may become clearer once estimates of the insured losses become available.

Read our other European windstorm Xaver coverage, most recent first:

- European windstorm Xaver; updates from risk modellers

- PERILS to assess European windstorm Xaver industry loss potential

- European windstorm Xaver brings another reminder of winters threat

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