Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Most cat bonds should not be impacted by hurricane Idalia: Twelve Capital’s Steiger


The catastrophe bond market looks set to escape any significant impacts from hurricane Idalia, despite the fact a major storm landfall in the state of Florida is typically seen as one of the main events the cat bond market could be exposed to.

Florian Steiger, Twelve CapitalWhile the catastrophe bond market remains weighted towards Florida hurricane risk, with it making up the largest component of the diversified cat bond market in expected loss terms, the fact major hurricane Idalia came ashore in a region of much lower population and insured values should see direct losses being minimal, to zero, while some aggregate erosion is possible as ever.

When you consider the fact the cat bond market was left with relatively minor actual losses (in a market-wide perspective) from hurricane Ian’s near $50 billion of industry insured impact in 2022, the up to $10 billion currently expected from Idalia should not trouble the cat bond market unduly, it now seems.

It’s important to note that the property and human impacts from hurricane Idalia are ongoing and already one death has been attributed to the storm, while some 250,000 households are reported to be without power and coastal streets are flooded in parts of Florida.

Idalia’s eye has now moved into Georgia, still with hurricane force wind gusts and so damage will continue to be reported.

But the event is being seen as one that the primary insurance market will largely bear the brunt of, with some reinsurance losses likely in support and potential minor loss impacts for any ILS funds with exposed collateralized positions.

Insurance and reinsurance-linked investment manager Twelve Capital’s Head of Cat Bonds Florian Steiger commented on hurricane Idalia’s approach to Florida this morning.

At that time, Steiger was concurring with others in the industry, that Idalia would not drive any significant losses to catastrophe bonds.

“While it’s too early to provide definitive numbers, initial assessments suggest that the potential insured losses should be within manageable limits for cat bond structures,” Steiger wrote earlier today.

In a later update, just after Idalia made landfall in the Big Bend region of Florida’s Gulf Coast with 125mph winds, so a Category 3 major storm, Steiger noted that Idalia’s track had shifted somewhat further northeast, taking the storm away from Tallahassee, the nearest major urban centre, so reducing the potential for larger losses.

“While the event is likely to incur multi-billion-dollar losses for the insurance sector, current analysis suggests that most cat bonds should not be impacted by this event,” Steiger explained.

But he added that, “This situation should positively influence reinsurance pricing, likely leading to higher premiums and subsequently supporting cat bond spreads in the near term.”

It’s worth recalling another cautionary statement from Steiger earlier today, that should also be noted, “It is important for investors to remember that the peak hurricane season is far from over and will extend through the next six weeks until mid October.”

It appears increasingly likely that the only catastrophe bond market impact from hurricane Idalia will be a further erosion of aggregate cat bond deductibles to some positions, continuing the trend that had been seen after the US severe convective storms of recent months.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.