Swiss Re Insurance-Linked Fund Management

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AIR puts loss estimate from late May tornadoes at up to $7 billion


Risk modelling firm AIR Worldwide have issued an estimate for the amount of insured losses caused by severe thunderstorms and tornadoes which struck the U.S. between the 20th and 27th May this year. AIR believe that the storms which affected a large area of the U.S. will cause insured losses to residential, commercial and industrial properties and their contents and to automobiles  of between $4 billion to $7 billion.

This is the second period of tornadic weather that AIR have provided a loss estimate for. The first, for tornadoes between the 22nd and 28th April, was estimated to have caused up to $6 billion. Severe thunderstorms and tornadoes have continued to impact the U.S. and there have been events between these estimate periods and after which will also have caused some losses, but these two periods contained the most devastating events.

These two major outbreaks of tornadoes are contributing to making this a record year for tornado losses, AIR say the two outbreaks are the costliest on record.

It’s yet to be confirmed what the impact to exposed catastrophe bonds will be. At the very least we expect aggregate losses to be mounting further for exposed transactions. The Mariah Re cat bond has already had some events qualify as aggregated losses from late April but no reports have emerged about events beyond that so far. Some Residential Re tranches of notes had also been accumulating aggregate losses but their current risk period ran out on the 31st May and we’ve yet to hear the final toll.

Earlier we wrote that Bermudian reinsurer PartnerRe had suggested in their estimate of their own losses from the late April outbreak that some of their losses could be attributed to losses against insurance-linked securities.

Whether this years record breaking tornado season and the resulting insured losses cause any dent to investors principal on any exposed catastrophe bond transactions or not, it will serve as a reminder that cat bonds can be an effective way to transfer severe thunderstorm risks off a re/insurers books and over to the capital markets.

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