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Typhoon Kammuri (Tisoy) causes significant damage, but Philippines cat bond expected safe


The extent of the devastation caused by recent typhoon Kammuri’s impacts on the Philippines has become clearer, as the latest report from the government shows more than 460,000 properties damaged.

philippines-flagTyphoon Kammuri, known locally as typhoon Tisoy, made landfall in the Philippines as a strong Category 3 or 4 equivalent storm, impacting the southeastern part of Luzon, the most populated Philippines island, on Monday 2nd December.

As we explained as the typhoon approached, the Philippines government has only days earlier become the beneficiary of $150 million of tropical cyclone insurance protection backed by the capital markets through its new World Bank issued catastrophe bond, the $225m IBRD CAR 123-124 which also provides $75m of earthquake protection as well.

The cat bond utilises a modelled loss trigger, so it’s impossible for us to gauge whether there could be any impact to the noteholders from typhoon Kammuri at this stage. However, our market sources suggest that it is unlikely that the modelled loss impact would be severe enough to cause the resulting index to reach the trigger point.

The damage in the Philippines has been significant though, with the latest report from the government’s National Disaster Risk Reduction and Management Council (NDRRMC) highlighting the significant structural effects of the typhoon.

As of December 12th, the NDRRMC reports that more than 1.9 million people were affected by the passage of typhoon Kammuri, after which almost 84,000 have required some kind of temporary shelter due to damage to their homes.

A stunning 55,229 homes have been completely destroyed by Kammuri, with another 405,407 partially damaged, according to the NDRRMC data.

In addition, 2,193 schools are reported as partially damaged by the typhoon, as well as 34 health facilities, 185 other public structures and 42 other structures.

So, in total 55,235 properties and structures have been reported as totally destroyed, with 463,091 properties and structures destroyed or damaged by the impacts of typhoon Kammuri.

In addition there was widespread impacts to infrastructure as well, including roads and bridges, power transmission lines with more than US $100 million of damage to infrastructure and agriculture reported.

While these numbers are significant, the new Philippines catastrophe bond has been structured so as to respond to the most intense Category 5 equivalent typhoon impacts.

At this stage it does seem that typhoon Kammuri was likely not intense enough to trigger any payouts, although we cannot 100% confirm this as it will require the calculation process to run, if appropriate.

While the storm was clearly devastating and has had a terrible impact on the people affected, the disaster insurance provided by the cat bond is designed to respond to specific scenarios, which Kammuri may not qualify under.

The Philippines cat bond uses a modelled loss trigger, meaning after a catastrophe event strikes the country the calculation agent, risk modeller AIR Worldwide, would be required to run its models to analyse the event and derive a modelled loss figure, based on pre-defined post-event loss calculation procedures.

The resulting modelled loss total would then be compared to terms that define whether any payout is due under the cat bonds tropical cyclone coverage, with the $150 million of notes able to payout in increments of 0%, 35%, 70% or 100% of principal, depending on how severe the event was.

However, the trigger for the Philippines catastrophe bond is calibrated in such a way as to respond to the most severe of typhoon impacts.

Historical modelling analysis for the cat bond deal showing that the only storm in the catalogue that caused a high enough modelled loss to require payout being 2013’s typhoon Haiyan, a monster category 5 super typhoon that made direct landfall and even that would only have caused a partial 35% loss of principal.

The exposed cat bond notes from the Philippines transaction have not seen any dip in their pricing in the secondary market so far, underlining the fact that, as of now, investors seem to anticipate that it will not face any loss of principal due to Kammuri.

We understand that the calculation process would not run until 28 days after the storm and then the agent would have some more time before its report is due, meaning a final determination won’t be known until that time. However, again it’s worth reiterating that the market does not seem to anticipate any impacts to the cat bond.

We’ll update you should any information come to light suggesting any risk of loss for the bonds noteholders.

It’s unclear at this stage whether there could be any payouts due under the Philippines parametric disaster insurance facility that is backed by a range of major insurance or reinsurance firms and also some ILS funds as well.

You can read all about the landmark Philippines catastrophe bond, the IBRD CAR 123-124 issuance, in our comprehensive catastrophe bond Deal Directory that includes details on over 600 transactions.

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