Insurance-linked securities and reinsurance-linked investment manager Credit Suisse has estimated that total insured industry losses from European windstorm Christian could be in the range of $1.7 billion to $2.9 billion but does not expect the event to impact its IRIS Low Volatility Plus fund.
The update from Credit Suisse comes via the DCG Iris London Stock Exchange listed insurance-linked securities fund, which is managed by Dexion Capital as a feeder fund into CS Iris Low Volatility Plus. With Credit Suisse not expecting any impact to its fund it also means that the DCG Iris fund is likely safe from windstorm Christian, as long as the insurance industry losses are within this range.
Credit Suisse describes the storms impacts:
Winter storm Christian (known as “St. Jude” in the United Kingdom) battered northern Europe between October 27 and 29 affecting countries bordering the English Channel, North Sea and Baltic Sea. It was one of the strongest storms of the last few years and reached peak wind gusts of more than 190 km/h (119mph) with storm surges reaching as high as 7.5 metres. Christian first impacted the south of Great Britain early on Monday, October 28, then moved along the English Channel and across Denmark and reached north-western Russia on Tuesday, though significantly weakened.
While most winter storms in Europe typically reach their peak intensity over the Atlantic Ocean, Christian gained in intensity while crossing Britain, caused by the shape of the jet stream. It reached its peak intensity while crossing northern Germany and Denmark, with southern Denmark recording wind gusts of 194.4 km/h (121 mph), the strongest in the country’s history. France, Belgium, the Netherlands, southern Scandinavia and the Baltic states were also impacted.
Storm Christian caused widespread transport disruption in all affected countries as rail lines were blocked by fallen trees, airports cancelled flights and harbours delayed shipping traffic. 270,000 homes in Britain and 75,000 in France temporarily lost power. The northern German city of Hamburg recorded a storm surge as the wind gusts drove water upstream the Elbe river. Flooding was very limited, however, as water levels reached only slightly above the barriers. At least 14 fatalities have been reported so far, mainly due to falling trees.
Most of the damage is expected to have been caused by the wind gusts as flying debris and falling trees damaged homes and cars. As buildings in the affected areas are primarily of masonry construction, most of the damage was limited to rooftops and chimneys, but the storm affected a very large area.
It is very early to produce industry loss estimates for Christian, hence the wide range published by Credit Suisse and there is likely to be some movement as the true extent of damage and resulting claims becomes clearer in the coming weeks. Two days ago reinsurance broker Willis Re estimated insured losses of £300m to £500m (approximately €350m to €580m) in the UK alone, which would appear to be reasonably aligned with Credit Suisse’s estimate for insured losses across Europe.
Credit Suisse explained how it came to its estimate of insurance industry losses from European windstorm Christian:
To derive a first industry loss estimate, we have used a proprietary Europe wind tool which allows us to source near-real time wind data, apply it to insurance exposure and calculate the insured industry loss by zone, country and line of business. We also factored in the fact that this storm is relatively early in the season and so has a larger effect on trees (due to leaves still being on the trees), which leads to slightly higher losses due to wind than if it had occurred in January or February. In addition, the model factors in the flood component as a result of rain. The model has not only enabled us to derive first post-event estimates but also to produce forecasts ahead of the event. Nevertheless, we point out that such events are complex in nature and any estimates are subject to uncertainty.
Credit Suisse explained that based on the range of insured losses in its estimate and the modelled portfolio impact it does not expect any impact to the low volatility plus fund. The storm may have the potential to create losses for some higher-risk fund strategies that the manager runs, such as its IRIS Enhanced fund, but it will likely require an official estimate to be released by the likes of PERILS AG before that is fully understood.
It is looking increasingly likely that ILS investors and third-party reinsurance capital providers will face some level of losses from windstorm Christian, particularly if the insured loss is above $2 billion where it will likely begin to erode layers in some reinsurance programmes which may have collateralized participation. There could also be some low attaching industry loss warranties (ILW’s) with exposure, but we can’t be sure of this.
With losses in the range estimated by Credit Suisse it remains unlikely that any 144A catastrophe bonds covering European windstorm risks will be impacted. The industry loss would likely need to be higher before any cat bonds are threatened according to sources, but again this will become clear in the coming weeks as more information on the extent of losses emerges.
We’ll continue to update you as new reports regarding European windstorm Christian are published.
Read our past coverage of European windstorm Christian: