Swiss Re Insurance-Linked Fund Management

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Some ILS fund November returns dented by Australia hail & severe weather


A number of insurance-linked securities (ILS) funds invested into collateralised reinsurance positions that are exposed to catastrophe events in Australia have reported negative performance for November on the back of reserving for hail storms and severe weather, we understand.

Weather image from DreamaticoIn particular, losses from the Queensland, Australia hail storms that struck on the night of October 31st 2020 are now being factored in and reserved for by some ILS funds, sources told us.

These storms were declared as the first catastrophe of the 2020-21 season by the Insurance Council of Australia, who reported that over A$500 million of claims had been made by December 14th.

The total insurance and reinsurance market loss from this hail storm event was then estimated at A$1.231 billion by PERILS AG, driving home the fact this could be a particularly impactful event for the local insurance sector and potentially for some reinsurance capital providers as well.

Insurer Suncorp then estimated that it could pay between $180 million and $220 million of claims just from this Queensland hail storm event on the last day of October, again suggesting that some private reinsurance layers could be at risk from this severe weather event.

In fact, should Suncorp’s estimate have risen above A$250m, it could have brought its per-occurrence catastrophe reinsurance tower into play.

Severe storms were also experienced in Victoria around the middle of November 2020 and again on 22nd and 23rd, with some damage seen from these locally significant thunderstorm events.

It’s not clear to us whether the losses and reserving affecting ILS funds is strictly from the Queensland hail, or a combination of losses aggregating over the course of the month.

We understand that the impact of these Australian severe weather loss events has been sufficient to cause some ILS funds to report negative performance for the month of November 2020.

However, this is really another attritional event, just sufficient to erode monthly profits for some fund strategies, not a significant loss.

We’re also told that November’s ILS fund returns will show an element of loss creep as well, for some fund strategies, as industry estimates for certain specialty lines (specifically marine and aviation) loss events that occurred in 2019 have been increased.

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