Twelve Capital: Limited impact from Hawaii fires & typhoon Lan, but aggregates watched

Twelve Capital, the Zurich-headquartered insurance-linked securities (ILS), catastrophe bond and reinsurance investment manager, has said that it expects no direct losses from the wildfires in Hawaii, while typhoon Lan’s passage through Japan is not expected to cause much of an impact to its portfolios.

The one area Twelve Capital does caution on is aggregate erosion exposure, so retention buffers being depleted further for any catastrophe bonds, reinsurance or retrocession contracts that aggregate losses across multiple events.

Typhoon Lan made landfall in Wakayama prefecture, Japan yesterday as a Category 1 storm with winds of up to 80 mph or so.

Having weakened on approach to Japan, typhoon Lan was expected to bring typhoon-force winds and heavy rainfall to the region, with a chance there could be some effects in the larger cities of Osaka and Kyoto, Twelve Capital noted.

Rainfall is anticipated to be the most significant impact from typhoon Lan, with some regions anticipated to receive more than 10 inches as the storm crosses the country.

At the time of its update, Twelve Capital noted that there was still “a high level of uncertainty regarding the location and strength of the typhoon.”

It’s understood that typhoon Lan did indeed make landfall as a Category 1 storm, but its wide rain bands have caused flooding and there has been property damage reported, although not particularly extensive it appears, according to local news reports.

In its update from yesterday, the ILS fund manager said, “Twelve Capital does have positions in Japan, but based on the current forecasts does not expect much of an impact on these.”

It seems unlikely that outlook would have altered much by today.

On the wildfires in Hawaii, which as we reported yesterday are estimated to have destroyed over 2,200 properties at a reconstruction cost value of around $5.52 billion, Twelve Capital is not expecting any exposure.

The investment manager said, “Twelve Capital has limited wildfire exposure in its portfolios, with Hawaii contributing only a small fraction to this exposure and as such, the wildfires are not expected to cause a direct loss to any positions.”

But, Twelve Capital also noted that it, “Continues to track for aggregate erosion across relevant positions.”

Catastrophe bonds have come under some pressure in recent weeks due to erosion of aggregate deductibles, especially after severe convective storms (SCS) drove significant insured losses across the United States in recent months.

The wildfires in Hawaii have the potential to exacerbate that for some cat bond positions, further eroding aggregates.

As we reported earlier this morning, early estimates of insurance market losses from the wildfires in Hawaii range from above $1 billion to around $3 billion.