Swiss Re Insurance-Linked Fund Management

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ILS funds report potential exposure to Tianjin blast, but minimal


A number of insurance-linked securities (ILS) or reinsurance-linked investment funds have reported a potential exposure to the recent Tianjin chemical storage facility explosion in China, but any impact to the ILS market is expected to be extremely minimal.

Tianjin explosion aftermath

Tianjin explosion aftermath - Picture from BBC

With the expansion of ILS funds into collateralized reinsurance and some managers beginning to underwrite specialty lines risks in the marine, energy, aviation and industrial space, the chance of an ILS fund finding it has exposure to disasters such as the Tianjin blast keeps growing.

The layers of risk that ILS managers write in lines such as marine, where much of the insurance and reinsurance industry losses from Tianjin are expected to fall, see them taking on high layer exposures to many risks that could be affected by this type of event.

In its latest report on the ILS fund market, ILS Advisers reports that a number of ILS funds reported estimates for potential losses from the Tianjin blast. At this stage the ILS managers will likely have been notified that losses are possible to contracts they have underwritten, but that the actual figures remain unknown.

It’s been difficult for losses to be accurately quantified for the explosion, partly due to the lock-down of the site due to fears over contamination, but also due to uncertainty over ownership and responsibility for the facility.

Insurance industry loss estimates currently range from USD$1 billion up to as much as USD$3 billion, with the industry beginning to converge on something above the USD$2 billion mark.

ILS Advisers explained that any loss to ILS funds from the Tianjin explosion would be minimal and would come from marine lines of business. In fact, any losses to ILS funds would be expected to be merely attritional, if not nil, ILS Advisers explained.

The reason for this is both due to the fact that marine lines make up a very small portion of some ILS fund manager portfolios and that the level at which ILS funds participate in these risks means that only the largest events are expected to impact them.

So, there have been some ILS fund loss estimates reported for the Tianjin explosion, which could result in some minimal reserving or side pockets created perhaps, but any exposure is expected to be merely attritional, which would likely mean it wouldn’t even turn a single month negative for the ILS funds involved.

We don’t have information on the specific funds that have reported a potential exposure to the Tianjin blast at this time.

Also read:

Tianjin explosion insurance losses could hit $1.5bn (or higher).

Tianjin explosion costs to hit reinsurers, amount uncertain: Rating agencies.

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