Catastrophe bonds covering pure European windstorm risks are not expected to face any direct losses after the last few days of severe storms that blew across the continent, but there are implications for aggregate retrocession cat bonds, according to Plenum Investments.
As we reported earlier this morning, insurance and reinsurance markets can anticipate losses into the billions after the impacts of two severe European windstorms, Dudley (Ylenia) and Eunice (Zeynep), to give them both their UK and European names.
The European windstorms, Dudley (Ylenia) and Eunice (Zeynep) swept in from the Atlantic on a particularly strong jet stream setup, impacting Ireland, the United Kingdom and parts of northern Europe including Belgium, the Netherlands, Germany and Poland.
Damage has been reported across a wide region, with wind gusts of more than 100 mph reported in a number of locations. Storm activity continues with windstorm Franklin impacting parts of northern and western Europe, while Gladys is anticipated for later this week.
Specialist catastrophe bond, insurance and reinsurance investment manager Plenum Investments does not believe the storm activity will cause sufficient losses to threaten any of the pure European windstorm catastrophe bonds that are outstanding at this time.
The Zurich-headquartered investment manager explained, “The exact extent of the damage is not yet foreseeable, but the extratropical cyclones are certainly one of the strongest wind events in Europe since storm “Kyrill” in 2007. In Germany alone, insured losses are expected to be around EUR 900 million, and initial damage estimates for the UK are around half a billion EUR, so losses in the lower single-digit billion range are quite realistic.”
Adding that, “According to our initial assessment, none of the pure Europe storm CAT bonds are likely to be at direct risk of default; these mainly cover the less affected countries of the Netherlands and France.”
However, there are deductible erosion implications for aggregate retrocessional reinsurance catastrophe bond structures, Plenum Investments believes.
“For global retrocession covers on an aggregate industrial loss basis, we expect contributions to the loss aggregate, but also no defaults,” Plenum said.
While these contributions could erode some cat bond aggregate deductibles, it seems, Plenum is not expecting it to be sufficient to cause any performance hit to its catastrophe bond funds.
“Consequently, there should also be no negative performance impact on our CAT Bond funds,” Plenum said.