Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Plenum: No impact to cat bond fund expected from Typhoon Wipha


Often the first reinsurance-linked investment manager to come out with an official statement after a catastrophe event, Swiss ILS investment manager Plenum Investments has said that it does not expect any impact to its catastrophe bond fund from Japanese Typhoon Wipha.

Typhoon Wipha struck Japan just over 24 hours ago, brushing the main island of Honshu and passing by Tokyo only around 30 miles offshore. Wipha brought typhoon force winds and tropical rainstorms to much of Japan, the storm itself was almost as large as the entire country and the Japanese meteorological association called it the largest and most powerful typhoon to strike Japan in a decade.

Japanese typhoon risks are a peril which is part of the catastrophe bond market, with a few outstanding cat bonds having exposure to the peril and thus to typhoon Wipha.

Plenum Investments said that as typhoon Wipha passed Japan it merged with a cold front and transitioned into an extratropical storm, much like Sandy did in the U.S. Wipha was much weaker though and also passed by Tokyo near to low tide which meant that storm surge damage will have been minimal.

Typhoon Wipha badly impacted some islands in the Izu cluster to the south of Tokyo, causing extensive damage and some loss of life, but damage to Tokyo and other metro areas of Japan is not expected to have been severe. Plenum notes that Japanese building codes and construction standards are designed to withstand storms of this severity meaning that only minor damages are to be expected.

Plenum Investments cat bond fund has only a limited exposure to Japan typhoon risk, of around 1.5% of the funds NAV. Due to the nature of the storm and the minimal exposure, Plenum Investments does not expect typhoon Wipha to have an adverse effect on its Japan typhoon cat bond investments.

Current catastrophe bonds exposed to Japan typhoon risks include:

Akibare II Ltd. which protects Mitsui Sumitomo Insurance Co. Ltd. against Japan typhoon wind and flood risks on a modelled loss basis. Typhoon Wipha is unlikely to have been strong enough to trouble a modelled loss bond.

Kizuna Re Ltd. which protects Tokio Marine from typhoon losses on an indemnity basis. Tokio Marine has a very high insurance penetration in Japanese metro regions but again Wipha is not suspected to have been sufficiently severe to trouble this cat bond.

Montana Re Ltd. (Series 2010-1) a multi-peril cat bond issued for Flagstone Re which uses an RMS Paradex (parametric index) trigger. Again Wipha is unlikely to come close to being powerful enough to trouble this cat bond.

Vega Capital Ltd. (Series 2010-I) another multi-peril bond, this time for Swiss Re, and again with a parametric trigger, so again Wipha is unlikely to come close to the trigger variables.

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