Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

S&P keeping watch on hurricane Irene exposed catastrophe bonds


Ratings agency Standard & Poor’s has issued a press release to say that they are keeping an eye on the progress of hurricane Irene as she approaches the U.S. coastline in case the storm has any impact on any catastrophe bonds that they provide ratings for. A number of catastrophe bonds have potential exposure to hurricane Irene along the North Carolina, New England and New Jersey coastlines.

S&P say that they will not take any ratings actions on any exposed catastrophe bonds until the event has passed given the uncertainty on the exact location of landfall. There seems little point changing ratings as a hurricane approaches. A rating change would be unlikely to affect the volume of bonds traded in the market as investors generally have access to sophisticated forecast modelling and have a good idea of the eventual impact by this stage in a hurricanes life. It’s hard to see what difference a ratings change would make in the run up to an event, especially given the level of uncertainty around losses or windspeeds.

S&P say that they will wait until post-event estimates of damage levels are available before making an assessment. If damage assessments suggest that any cat bonds are at risk they could put their ratings on a negative CreditWatch. That covers cat bonds which are triggered based on indemnity losses, but what about any parametrically triggered bonds? We assume S&P would wait for event notices to be filed with them by sponsors if parametric factors formed the trigger for any exposed cat bonds.

We will update you if any ratings actions are taken by S&P on any catastrophe bonds.

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