Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

ILS and reinsurance funds expect no China earthquake impact


The large earthquake which struck China’s Sichuan province on the 20th of April will not result in any impact to insurance-linked securities (ILS) or collateralized reinsurance investment funds, according to the fund managers we’ve heard from. Despite causing widespread damage, killing at least 200 people and injuring more than 12,000 others, insurance penetration is so low in China that any impact to the industry will be small.

As a result reinsurers are not expected to shoulder a large loss and ILS funds and collateralized reinsurance funds will likely all be safe. The ILS market does not see China earthquake risk issued in the form of catastrophe bonds and while some reinsurers, and perhaps collateralized reinsurers, do underwrite Chinese risks the level of industry losses from this quake are expected to be far too low to impact them.

Business Insurance reported a couple of days ago that just 295 insurance claims had been received by China’s insurance industry, which is an astoundingly low number when you see the extent of the damage and devastation the quake caused.

Aon Benfield said in a catastrophe report update that while the economic impact of the earthquake is expected to be in the billions of dollars any insurance impact would be muted with insured losses not expected to be significant.

Swiss based ILS investment manager Plenum Investments said in an update that the earthquake while devastating would have no impact on the catastrophe bond market and its Plenum Cat Bond Fund, as earthquake risk in China has not yet been transferred to the capital markets using cat bonds.

Investment manager Credit Suisse issued an update on its CS Iris ILS and catastrophe reinsurance funds, saying that due to the low insurance density in China and the fact that its funds are strongly underweighted to China in their exposure, it does not expect any financial impact on its funds performance. That also applies to the DCG Iris ILS fund managed by Dexion Capital as it invests its assets directly in Credit Suisse funds.

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