The eventual insurance and reinsurance industry loss from last weeks hurricane Michael is not expected to trigger any of its catastrophe bond positions, according to specialist insurance-linked securities (ILS) investment manager Plenum.
Zurich based specialist insurance-linked securities (ILS) and catastrophe bond investment manager Plenum Investments said that the hurricane would not cause losses high enough to cause any of the cat bonds in its portfolio to attach.
Despite the intense wind speeds associated with hurricane Michael and the duration that hurricane force wind gusts lasted as the storm tracked inland and north, the storm is not expected to result in cat bond losses.
Plenum Investments highlighted the “sparsely populated” nature of the landfall region in Florida where hurricane Michael came ashore, which it notes will limit insurance and reinsurance losses.
The ILS investment manager said that its own internal modeling suggests an industry loss to insurance and reinsurance interests of between $3 billion and $8 billion, which is roughly aligned with estimates from catastrophe risk modelling firms Corelogic ($3bn to $5bn) and Karen Clark & Co. (almost $8bn).
If proven correct, Plenum notes that this will place hurricane Michael well behind last year’s Florida hurricane Irma with its insured loss estimate of $30 billion, meaning a lower impact for ILS and perhaps none for catastrophe bonds at all.
Plenum notes that the cat bond market has “little exposure in the affected area” and as a result the firm doesn’t “expect the Plenum CAT bond fund to suffer any losses from Michael.”
The company said that its own internal modeling shows a zero expected loss and almost no dispersion around the expected value for its cat bond fund.
Finally, Plenum also noted that the investor has not seen any secondary market cat bond trading related to hurricane Michael, which it says suggests that the catastrophe bond market as a whole “is not concerned by this event.”
As we wrote earlier today, ILS market exposure to hurricane Michael as a whole is not expected to be significant, although some losses will fall to ILS funds and investors allocating capital to the lower layers of reinsurance and retrocession programs, or through collateralized quota shares and sidecars.