Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Above average start to U.S. tornado season to have no impact on catastrophe bonds


The above average start to the U.S. tornado season has continued to trend well above the long term historical averages. With insured losses from some recent outbreaks said to be as high as $2 billion and 269 recorded tornado touchdowns (as at 17th March) versus a 50th percentile average of 102 on that date, it’s looking like the 2012 tornado and severe convective storm season could result in large losses for re/insurers. Despite this severe start to the season, rating agency Standard & Poor’s says that to date the losses should be manageable for the insurance industry.

S&P expects U.S. primary insurers to sustain the majority of the losses suffered so far in 2012 with any impact to reinsurers being modest after the insurers retention. They say it is too early to say whether the active start to the season will result in a highly active year and the corresponding high losses.

“Given the early estimates of insured losses, we do not expect these tornadoes to trigger any of our rated catastrophe bonds,” said Standard & Poor’s credit analyst Jason Porter. S&P says that they will continue to monitor development of losses from recent tornado outbreaks and any future tornado activity this season for any adverse effects on rated insurers, reinsurers and catastrophe bonds.

There aren’t any pure tornado or severe thunderstorm cat bonds in the marketplace anymore, since the losses of the two Mariah Re cat bonds last year. There are a number of cat bonds with some level of exposure to severe thunderstorms and tornadoes but it will take a very severe season for these to be impacted by tornadoes alone.

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