Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Florence saw less ILW and live cat activity than other recent storms


Activity in the market for live cat (live catastrophe) trading and protection buying was lighter for hurricane Florence than other recent storms, in terms of volume traded, but some ILW trades were completed as the storm approached.

Compared to other recent storms, such as the 2017 hurricanes Harvey, Irma and Maria, live cat volume was much lower for hurricane Florence as the storm approached last week.

The difference between the trigger levels of those wanting to buy protection and those wanting to sell was significant, so few trades were completed.

Most of the market was offering capacity at $25 billion and $30 billion industry loss triggers, while larger buyers were down at $15 billion. This was excluding NFIP and loss adjustment expenses (LAE) from the loss estimates.

As Florence’s wind speeds reduced the difference in price between the two sides of the market narrowed, we understand, resulting in more trade execution.

Risk trading based on industry loss triggers linked to the eventual insurance and reinsurance industry toll from a major catastrophe such as a hurricane allows protection buyers to acquire last-minute protection while a storm approaches (so-called live cat) or even after the landfall has occurred (so-called dead cat).

Typically these are industry-loss warranties (ILW’s), usually structured as a derivative or swap for ease and speed of execution.

ILS funds are often the markets behind the capacity and increasingly could also be the protection buyers as well.

Patrick Gonnelli, Partner and Global Head of ILS Distribution and Trading at TigerRisk Capital Markets & Advisory, explained to Artemis that the live cat market saw more activity as hurricane Florence approached.

However, Gonnelli also explained that there was less trading completed on hurricane Florence than was seen during other recent hurricane events.

He said that one sizeable trade was completed mid-week by his team, but overall the number of actual completed deals was relatively light.

The secondary cat bond market was even slower, Gonnelli said, which reflected markets trying to get a handle on the loss impact while being away for most of the week at the Monte Carlo Reinsurance Rendez-vous event.

On the dead cat side, so trading after landfall, while a few enquiries have been fielded by brokers, we understand that nothing has been completed so far.

Given the lowering of insurance and reinsurance market loss expectations from hurricane Florence, it’s possible that there won’t be any dead cat market trading at all with this storm.

Also read:

Hurricane Florence loss only $2.5bn (ex-NFIP), says Karen Clark & Co.

Reinsurance & ILS market share of Florence loss likely minimal: Analysts.

Cat bond index only fell 1.15% on hurricane Florence threat.

Hurricane Florence’s 1,000 year rains flood the Carolina’s.

Model mean projects $3bn to $3.5bn wind loss from Florence.

Hurricane Florence re/insurance losses will be manageable: S&P.

Hurricane Florence wind & surge insured loss potential put at $3bn to $5bn: Corelogic.

A handful of cat bonds traded on hurricane Florence approach.

ILS fund values fluctuate on Florence, threat now reduced.

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