Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

No impact expected to cat bond fund from midwest tornadoes: Plenum


Yesterdays outbreak of severe thunderstorms, which triggered large hail, damaging winds and tornadoes across the U.S. midwest, is not expected to impact any of the catastrophe bond positions in Swiss catastrophe bond investment fund manager Plenum Investments portfolio.

The Swiss insurance-linked securities manager is the first to announce that it does not feel the events of yesterday will have been severe enough to impact any of the positions it holds in its cat bond fund.

The outbreak of severe thunderstorms saw over 80 tornadoes touchdown across the midwest, causing severe destruction, widespread power outages and at least six fatalities. More than 70 homes were destroyed in Illinois alone, with most of the damage occurring in Washington county.

Severe thunderstorm and tornado risk is included in many catastrophe bond transactions, but Plenum notes that it is typically only a small contribution to the overall risk of the deal. Due to this Plenum does not expect any impact to any of the severe thunderstorm catastrophe bonds which it holds in its portfolio at this time.

Any aggregate cat bonds which cover severe thunderstorm risk could find this event qualifying as a loss, but it is far too early to tell. There is also a chance that some industry loss warrants (ILW’s) or collateralized reinsurance contracts may hold exposure to these events, but again it is too early to tell if the insured losses will be severe enough to impair any reinsurance deals.

Aon Benfield’s risk modelling division Impact Forecasting said; “From a financial loss perspective, prior to Sunday’s outbreak, both economic and insured losses attributed to severe weather were slightly below the 10-year average in 2013. Thus far, economic losses from convective storm events were roughly USD15.7 billion and approximately USD9.2 billion of those losses were covered by insurance. The 2003-2012 averages are USD17 billion and USD11 billion, respectively. It remains too early to project losses from Sunday’s event.”

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