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Credit Suisse ups Sandy estimate to $22.5 billion but lowers impact to ILS fund (and DCG Iris)


Credit Suisse has issued an updated event report on hurricane Sandy in regards to the storms expected impact to the asset managers CS IRIS Low Volatility Plus fund, and as a result the DCG Iris ILS fund for which CS Iris is the master fund. Credit Suisse has increased its estimate of the insured industry losses from Sandy and now expects the final industry loss total will breach $20 billion and finish up nearer to $22.5 billion, but as a result of reduced uncertainty expects a lesser impact on its fund.

Now that the industry loss total for Sandy is becoming clearer, after PCS increased its estimate by 70% to $18.75 billion, Credit Suisse has more confidence in its estimates and so can begin to think about reducing the side-pockets it set up for potential Sandy losses.

When Credit Suisse first estimated the industry loss total from hurricane Sandy, it put the figure at $18 billion. However, the investment manager prepared itself for the worst, establishing a side-pocket large enough to account for 4.9% of the funds net asset value (NAV) and corresponding to an industry loss of up to $35 billion.

In the update published today, Credit Suisse said that the fact that it estimated Sandy losses very close to the second PCS estimate gives it confidence the estimate won’t rise significantly further. The firm said:

This latest estimate is in line with our original estimate of $18.5bn produced two days after Sandy made landfall.  Given that we also estimated the Japan earthquake in 2011 to within 3% of its final loss a few days after the earthquake occurred, this demonstrates that our modeling research team has developed a reliable and highly skilled methodology for industry loss assessments. The latest estimates and our calculations indicate it is likely that the final PCS loss figure will break the $20.0bn trigger and reach up to $22.5bn.

Credit Suisse said that Sandy has so far had a limited impact on the performance of the CS Iris fund, the master fund to DCG Iris so impact to DCG Iris will also be minimal. It said that the side-pocket within the Master Fund can now be reduced to around 1% of the projected end of January NAV.

Credit Suisse cites the reduced uncertainty as the reason that the side-pocket can now be safely reduced, adding that the remaining side-pocket of 1% of NAV is very small and should be resolved over the next couple of months.

As a result of this, Credit Suisse said that they are pleased to report that the performance of the Master Fund over 2012 was attractive despite superstorm Sandy.

This announcement will please and encourage investors in both the CS Iris funds and the DCG Iris ILS fund. The constant communications from Credit Suisse explaining the likely impact or otherwise of Sandy will have been good for investors confidence in the firm and DCG Iris.

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