Credit Suisse expects Isaac impact to ILS fund, says up to $6 billion industry loss

Investment manager Credit Suisse have said that they expect an impact to one of their insurance-linked security and catastrophe bond funds from the industry losses caused by hurricane Isaac. An event update on Isaac was published today by another investment firm, Dexion Capital, who manage the recently launched DCG Iris ILS fund, which acts as a feeder for and invests substantially all of its assets in one of Credit Suisse’s lower volatility ILS funds.

Credit Suisse provided an update on the impacts they have seen from hurricane Isaac as the storm barreled through the Gulf of Mexico, disrupting oil and gas operations and then hit the Louisiana coastline. As the investment manager of the CS Iris Low Volatility Plus Fund the update will have gone to their direct investors but also to Dexion Capital as the manager of the DCG Iris feeder fund.

Credit Suisse said the following regarding the potential size of the insurance industry loss from Isaac; “Considering all currently available information, we believe that insurance industry wide losses could go up to USD 6bn, but it is still very early in the aftermath of Isaac making landfall, so we will monitor the situation closely and provide updates if necessary.”

That’s significantly higher than the early estimates we reported this morning, but we’re not sure when this update was actually written by Credit Suisse. Also the use of the phrase “up to USD 6bn” is telling, and it will likely be revised downwards. However it does show that there is some nervousness over how large the final impact of the damage from Isaac is though.

Credit Suisse said that they expect an impact to the CS Iris Low Volatility Plus Fund of up to 0.20% on the NAV of the fund, and they estimate the August performance of the funds GBP class to be 0.47%. As a master fund to DCG Iris it has to be assumed that investors in the DCG Iris fund will see a similar impact this month, although they will be encouraged that the CS Iris fund is still expected to achieve a positive return for August anyway.

We’re not sure where the impact to the fund has specifically come from; whether Credit Suisse has specific ILW’s or financial insurance contracts which are impacted, whether they are expecting a hit to a catastrophe bond which could even be a private deal we don’t know of or perhaps Pelican Re, or even whether this is just an impact due to mark-to-market price adjustments of the funds investments. The update from Credit Suisse does not make that clear.

If the CS Iris fund see’s an impact then it is likely that other investment managers will too, particularly the larger funds. We’ll update you if we hear anymore.