LGT Insurance-Linked Strategies: No impact expected from Oklahoma tornado

Insurance-linked securities and reinsurance-linked investment manager LGT Insurance-Linked Strategies is the latest manager of catastrophe linked assets to say that, at this stage, it does not expect an impact to any of the investment positions or mandates that it holds from the Moore, Oklahoma tornado event of the 20th May.

The tornado which struck Moore, a suburban town of Oklahoma City, on Monday 20th May caused widespread devastation and loss of lives. The impact to the insurance industry is as yet unknown, but it has been widely reported that the insured losses from this event are likely to be greater than $2 billion.

How much greater than $2 billion is impossible to say at this time. Investment manager Credit Suisse said the insured industry loss would likely be under $5 billion. Others have said that the tornado will cause a greater economic and insured loss than 2011’s Joplin tornado. Based on data released by risk modeller AIR Worldwide it seems safe to estimate that as much as $4.5 billion of property was in the tornadoes 1.3 mile wide path, how much of that was destroyed it is too early to tell.

At this stage it looks like the tornado will result in a meaningful insurance industry loss. It’s also expected to impact certain aggregate catastrophe bond tranches, but possibly only as an erosion of deductible layers and mark-to-market price decreases. It’s increasingly looking like this could become the largest single tornado insurance and reinsurance loss event on record.

The LGT ILS team said that although its portfolios contain a number of positions which have U.S. tornado exposure it does not believe that a single tornado event or contained series of events, such as seen in Oklahoma, would typically be impactful enough to cause any of these investments to pay out. LGT added that only a severe tornado season, such as 2011, resulting in a $25 billion plus industry loss, could lead to an impairment or payout of an investment position.

LGT said; “At this stage, we do not expect any negative impact on the performance of our funds and mandates from this most recent tornado series.”

Of course LGT, like most other ILS and catastrophe bond investment managers, may see some mark-to-market impact to their funds returns in the short-term if, for example, secondary cat bond prices are affected as we suspect they might be. However this type of mark-to-market price reaction will likely be quickly recovered once the full extent of the industry loss is understood and any exposed cat bonds or catastrophe risk investments are cleared as unaffected.

We will continue to update you as more information on the impact of the Moore tornado becomes available. Our other articles related to this event can be found below, most recent at the bottom.

– Moore, Oklahoma City, hit by devastating tornado

– Oklahoma tornado may cause catastrophe bond price movements

– Credit Suisse: losses from Moore tornado under $5 billion, no ILS fund impact

– Insured losses from Moore, Oklahoma tornado could surpass Joplin

– CATCo: No impact from Oklahoma tornadoes if insured losses below $5 billion

– Blue Capital: No material loss expected from Oklahoma tornado

– EQECAT: $2Bn to $5Bn insured losses from recent tornado events, including Oklahoma