Swiss Re Insurance-Linked Fund Management

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ILS investors to share “material portion” of Matthew loss: Dubinsky


Investors in insurance-linked securities (ILS) funds (or other structures such as sidecars) will share a “material portion” of the eventual losses from hurricane Matthew, according to Bill Dubinsky of Willis Capital Markets & Advisory (WCMA).

It remains too early to discuss the exact estimated loss that will result from hurricane Matthew, or to comment on particular ILS transactions, according to Dubinsky, the Head of ILS at WCMA.

But the expectation is that if losses eat into reinsurance layers then ILS funds and their investors will pay a material share.

The reason for this is that for ILS funds Florida and the coastal southeast U.S. is ground-zero for their capital, as they participate heavily in reinsurance and retrocession on a collateralised basis in the region.

“Based on what we know now, ILS investors will share a material portion of the Matthew insured losses with insurers and reinsurers,” Dubinsky explained.

“While the loss may dampen current year investor returns, it is not expected to have a material impact on nonlife ILS assets, which currently exceed $70 billion.

“It is still too early to comment on specific transactions. By next week, secondary marks should converge to a greater degree,” he continued.

As is expected from the event now, Dubinsky said that “At this point, Matthew is not of a size or nature that will drive away ILS capital.”

“Instead, small increases in investor returns on ILS could attract substantial replacement ILS capital which should help mitigate reinsurance rate increases post-Matthew,” he continued.

That’s a worst case scenario for reinsurance firms, that they take a loss and the replacement capital comes in from the capital markets disabling their ability to command pay-back through rate increases.

With the growth of collateralised reinsurance and the strong support ILS funds provide to Florida insurers and reinsurers, as well as some ILS managers expansion into primary and commercial lines of insurance, an impact to the ILS market is to be expected.

But uncertainty remains the order of the day, as the size of the loss from hurricane Matthew is still unclear at this time.

Read our previous articles on hurricane Matthew:

Hurricane Matthew a test for re/insurers, ILS: Rating agencies, analysts.

Haiti in line for $20m after CCRIF parametric trigger hit by Matthew.

As Matthew strikes Florida coast still difficult to forecast losses.

S&P: 15 cat bonds at risk from hurricane Matthew. We add a few more.

Matthew could drag down re/insurer returns, but fail to increase rates: Peel Hunt.

Hurricane Matthew has potential to trigger cat bonds & ILS: RMS.

Barbados to see $975k from CCRIF parametric payout for Matthew.

Hurricane Matthew hits Bahamas, to intensify – Florida outlook worsens.

Matthew could hike aggregate cat bond attachment probabilities: RMS.

Hurricane Matthew threat awakens live cat market.

Cat bonds in holding pattern, Florida on watch for hurricane Matthew.

Florida, U.S. east coast now face risk of hurricane Matthew landfall.

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