Hurricane Ida data suggests $15bn to $25bn industry loss: Twelve Capital

Hurricane Ida’s insurance and reinsurance industry loss may fall between $15 billion and $25 billion based on early indications from modelling data, according to specialist ILS manager Twelve Capital.

The Zurich-headquartered investment manager is another that is particularly proactive in keeping its investors informed and shares some of this information more widely.

Managing portfolios of catastrophe bonds, collateralised reinsurance and private ILS, plus insurance related debt and equities, Twelve Capital’s strategies are broadly exposed to industry loss events.

But in the case of major hurricane Ida, which made landfall yesterday in Louisiana, Twelve Capital anticipates a manageable impact.

Twelve Capital said it has received modelling information from a variety of model vendors and which its team has now analysed.

“These first early indications point towards an insured loss of around USD 15-25bn for the insurance industry,” the ILS fund manager explained.

This aligns with what our sources have been saying.

As we explained over the weekend, an insurance and reinsurance market loss of above $10 billion has been anticipated since Sunday.

This morning we went into more detail, explaining that $15 billion to $20 billion, perhaps a little higher, is seen as a reasonable area to expect loss estimates to converge in the short-term.

However, we also highlighted a range of challenges that could amplify losses from hurricane Ida and drive a more challenging claims environment, which may drive loss creep longer-term. So an ultimate industry loss of above $20 billion certainly seems possible.

So the $15 billion to $25 billion range seems a very reasonable place to start considering hurricane Ida’s loss potential.

Twelve Capital rightly noted that hurricane Ida remains a threat at this time and will cause additional damage, especially from flooding, so “some caution with regards to these numbers is advised.”

But, the investment manager said that, “Should this turn out to be a correct estimate for this event, Twelve Capital does not expect any meaningful impacts to its ILS positions.”

Note the wording, no “meaningful” impacts.

As we explained yesterday, hurricane Ida will impact the ILS market, with some actual losses and also aggregate deductible erosion to positions.

Plenum Investments said that it anticipated minor impacts to its catastrophe bond focused investment funds in an update yesterday, based on the forecast at the time.

Any natural catastrophe event in the United States that drives industry losses of above $10 billion will hit the ILS market, given the size of the sector and its reach into reinsurance provision across the United States.

Losses will flow to ILS strategies from collateralised reinsurance, perhaps retrocession, definitely through some quota shares and perhaps sidecars as well.

In the cat bond market, it seems at the lower-end of the estimated range impacts will be largely due to mark-downs to aggregate catastrophe bonds that experience further erosion of their deductibles. Although, at the higher-end of estimates and above there is perhaps a chance of minor losses being experienced, however it is very challenging to tell at this early stage.

Twelve Capital noted that aggregate cat bonds are largely early into their risk periods, so erosion to their loss buffers by hurricane Ida may not be looked on too negatively by the market.

“It should be noted that even for the vast majority of aggregate Cat Bonds, there will still be between 70-80% of their buffer (attachment) left for the remainder of the 2021 hurricane season, which is almost half-way over, before these bonds would even start taking losses.

“As such, Twelve also does not anticipate any significant mark-to-market reactions, but remain vigilant as these assumptions are still subject to change,” the investment manager said.

Also read:

– Hurricane Ida insured losses expected in the double-digit billions.

– Hurricane Ida cat bond fund impact minor on latest track: Plenum.

– Hurricane Ida hits Cat 4, landfall location key to ILS market impact.