Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Insurance-linked security and retrocessional reinsurance funds report minimal or no impact from hurricane Irene


We’ve spoken with a number of fund managers in the last two days to gauge their opinions as to their funds exposure to losses due to the impact of hurricane Irene. Irene, was the first hurricane of the 2011 Atlantic Hurricane Season and struck the U.S. coast at North Carolina before impacting New York, New Jersey and other northeast U.S. states.

Hurricane Irene could have been the storm that all ILS, catastrophe bond and catastrophe retrocession fund managers would have feared. However what was once a major Category 3 hurricane actually struck land as a Category 1 before weakening further. In the end the bulk of losses from Irene look like they will come from flooding rather than wind damage. This means ILS and retro fund managers have got away lightly this time.

The ILS and catastrophe bond fund managers we’ve spoken with all say that they don’t expect any losses to any of the exposed catastrophe bond positions they hold. They do all report an impact on the return of their positions due to a dip in returns as Irene approached the U.S. coastline (as we reported here), indicative of nervousness amongst cat bond investors. However all fund managers exhibited confidence that those any decline on those positions will be recovered (as long as Katia keeps away from the U.S. coast).

Fund managers who invest in catastrophe retrocessional reinsurance show a similar level of confidence about any loss from Irene. Most suggest minimal to zero losses are expected, particularly as some limits may not be reached by the losses from hurricane Irene. CATCo Investment Management Ltd. said in a press release that they did not expect to see any loss to their retrocessional reinsurance portfolio even if the final insured loss tally came at the upper end of current estimates.

The latest estimates for insured losses from hurricane Irene remain in the range of $3 billion to $6 billion and nobody we spoke to suggested that they felt that could increase. Most of the people we spoke to felt a loss of approximately $4.5 billion was a reasonable scenario for a storm of this size and magnitude.

If you’re an investment manager and have experienced or expect otherwise, let us know in the comments below or by contacting us.

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