Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Credit Suisse expecting Sandy impact to funds (and DCG Iris), industry loss of up to $18B


Sandy impact reports are coming in from all angles now. The latest is from Credit Suisse who have said that if industry losses from hurricane Sandy meet their expectations, they expect an impact to one of their insurance-linked security and catastrophe bond funds. As well as affecting the CS IRIS Low Volatility Plus fund, it would also impact the DCG Iris ILS fund which Dexion Capital look after as that fund acts as a feeder for and invests substantially all of its assets in CS Iris.

The update from Credit Suisse says that they are expecting a higher insured loss than any other reports we’ve seen so far. Credit Suisse said that they believe that given the extent of the wind field and the storm surge from hurricane Sandy, the insured losses are likely to lie between $14 billion and $18 billion. Other estimates have pegged the industry loss around the $10 billion mark, so Credit Suisse’s estimate is substantially higher.

Credit Suisse also note that Sandy continues to cause damage as the storm heads north through the U.S. and that the total insurance industry loss could take weeks to fully understand and quantify. As readers will be aware, it could take months before the extent of business interruption and contingent business interruption claims are fully understood as well.

Credit Suisse said that based on modelled impacts they have calculated an initial impact on the performance of the CS IRIS Low Volatility Plus Fund. They expect this to fluctuate as reports of claims come in and the industry loss figure is firmed up.

Their impact analysis is based on an insurance industry loss of $10 billion to $20 billion. Interestingly they say that below $10 billion there could still be a marginal impact (possibly just mark-to-market), suggesting that Credit Suisse is fairly exposed here (unsurprising given the size of their ILS operations).

Based on losses of $10 billion to $20 billion Credit Suisse estimate the impact on CS IRIS Low Volatility Plus to be from zero to 0.6% and say that if the worst case occurs their October fund performance could be zero.

So, not a massive blow to investors if the worst case estimate occurs, simply a loss of October performance or a single months return. It’s impossible to know at this stage where Credit Suisse see’s the potential loss coming from, whether it is from catastrophe bonds, ILW’s, private transactions or financial insurance contracts they have invested in.

Any impact to the CS Iris fund will also cause on impact to Dexion Capitals DCG Iris fund, so investors in both will be watching future updates from Credit Suisse closely. It’s also possible that if Credit Suisse suspect an impact to their low volatility fund they likely expect an impact to their other ILS funds too.

It’s worth noting that these are estimates only at this time. Credit Suisse issued a similar report shortly after hurricane Isaac hit Louisiana but then updated it to say there was no impact after the size of the loss was better understood. There is a chance that could happen this time if the industry loss turns out to be less than $10 billion. However, given the rise in loss estimates it’s beginning to look likely that Sandy could clear that mark making some kind of impact to these funds a reality.

We’ll update you as more information becomes available.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

Artemis ILS Asia 2023 - Insurance-linked securities conference in Singapore

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.