Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Tornado impact to ILS investors cannot be ruled out: Twelve Capital


At this still early stage following the tornadoes and severe storms that struck the United States this weekend, it’s not yet possible to rule out any loss impacts to ILS investors, according to Twelve Capital.

Twelve Capital logoThe insurance-linked securities (ILS) and reinsurance focused asset manager said that it is not yet aware of any specific threats to catastrophe bonds.

But also highlighted that tornado losses are most typically felt by aggregate cat bond structures, especially in a year where other loss events have already begun the aggregation, such as from hurricanes.

In 2021, with impacts from hurricane season, possibly wildfires, other severe convective weather outbreaks and possibly even the winter storms earlier in the year to aggregate across, it’s not yet possible to rule out some erosion of deductibles.

As we explained earlier today, the most likely source of actual losses for the ILS market from the tornadoes would be via collateralized and likely private quota share reinsurance arrangements.

There is a chance there could be some excess of loss impacts, but these would depend on a specific insurer being particularly exposed to the tornado events, we believe.

Aside from that, aggregate deductible erosion is the other most likely point of contact for ILS investments to be affected, although that would be expected to be largely on a mark-to-market basis.

Twelve Capital said that, “This is a developing situation and damage is still being assessed, but very early estimates put the potential losses in the billions of dollars. Investors are reminded that even large tornados are typically not sufficient to cause losses to Cat Bonds on a stand-alone basis. Most tornado-related losses in the ILS market in past years have been through aggregate structures, where significant deductible erosion from multiple events (typically from additional hurricanes) caused harm to Cat Bond investors. At this stage, Twelve Capital is not aware of any immediate threats for Cat Bond investors, but given the lack of reliable insured loss estimates at this stage, impacts to ILS investors can also not (yet) safely be ruled out at this point.”

We’ll need some time to pass before any more reliable loss estimates emerge, so it could be while before ILS investors and ILS fund managers gain any clarity over potential effects to their positions and portfolios.

There is a strong chance some cat bonds are marked down a little at the end of this week, but these would be expected to be aggregate cat bonds that have already experienced deductible erosion and that cover severe thunderstorm risks.

Also read:

Significant tornado outbreak damages multiple U.S. states.

Weekend tornado & storm losses to run into billions of dollars.

Tornadoes to affect some aggregate cat bonds: Plenum.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis ILS NYC 2023 - Insurance-linked securities conference in New York City

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.