Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

ILS funds could see some Coronavirus contingency claims leakage: von Herberstein


The insurance-linked securities (ILS) fund market does hold some exposure to contingency related risks, including from event related exposures, which means there is a chance of some claims leaking to ILS funds from coronavirus triggered claims, Hudson Structured partner Edouard von Herberstein said today.

edouard-von-herbersteinSpeaking at the SIFMA Insurance and Risk Linked Securities conference held in Miami today, Edouard von Herberstein, a Partner at Hudson Structured and the Chief Underwriting Officer of its reinsurance underwriting at HSCM Bermuda, said that there is some event contingency risk in certain contracts and portfolios that ILS funds allocate capital to and invest in.

Asked whether there is any non-catastrophe exposure from contingency type risks, such as event cancellation, in the ILS market with exposure to the coronavirus outbreak, von Herberstein said “I know so.”

“I know some portfolios, they are contingency book ceded. Sometimes it even falls in the cat placement as well,” von Herberstein explained.

He said that it’s not clear to what extent and that it is likely to be minor, but it is definitely there. He also said some cat covers can have an element of pandemic related coverage included, in certain countries, resulting in some leakage potential from the current outbreak.

There is “some leakage potential from pandemics,” he stated.

“On event cancellation, I think it’s very minor, it will be very small,” von Herberstein said. “But I know deals that have a contribution from an event cancellation, contingency type of risk portfolio.”

“I think there will be some leakage and this is going to be interesting.”

When it comes to whether contingency related losses could leak into some catastrophe related contracts he said the coronavirus outbreak and how claims develop from it will be a “good test of the resilience of cat products.”

This will be a test of contracts, he explained and perhaps reveal what type of deals are being invested in by ILS funds and investors if leakage is seen.

von Herberstein’s comments today suggest that the insurance-linked securities (ILS) and collateralised reinsurance market could have more exposure to the coronavirus outbreak than previously thought.

So far, just the World Bank’s pandemic cat bond has come into the spotlight, but perhaps certain niche contracts entered into by some ILS fund managers may introduce an added element of exposure to the coronavirus outbreak, particularly if the situation worsens further.

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