Typhoon Kammuri has intensified in the last day and remains on track for a landfall in the Philippines. Known locally as typhoon Tisoy, the storm has now intensified to a Category 3 equivalent and approaches the Philippines soon after the issuance of its first catastrophe bond.
Typhoon Kammuri is currently located east of the Philippines and is tracking west for a direct landfall in southeastern Luzon, which is the country’s largest and most populated island.
The Joint Typhoon Warning Center (JTWC) estimates typhoon Kammuri’s sustained winds at approximately 120 mph, (105kts) but gusting to nearly 150 mph.
The JTWC’s forecast shows some further intensification right before landfall is possible, with typhoon Kammuri perhaps reaching sustained winds of close to 127 mph, with gusts approaching 155 mph.
After landfall typhoon Kammuri is expected to slowly weaken, although by the time it passes closest to the Philippines capital of Manila it could still have winds of up to 109 mph and higher gusts.
As ever with a typhoon landfall in the Philippines, the immediate danger is to coastal communities from storm surge, damaging winds and torrential rainfall.
But as Kammuri will come relatively close to highly populated Manila there is the prospect of some damage to much more highly urbanised areas as well with this storm.
The global insurance and reinsurance industry will be watching for any potential impacts to natural disaster insurance covers, such as 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.
In addition, as of just over one week, the Philippines now has its World Bank facilitated catastrophe bond issuance in force as well.
The country’s first catastrophe bond, this transaction provides the Philippines with $150 million of tropical cyclone disaster insurance protection from the capital markets. The $225m IBRD CAR 123-124 which also provides $75m of earthquake protection as well.
The Philippines catastrophe bond features a modelled loss trigger, meaning after a catastrophe event strikes the country the calculation agent AIR Worldwide will 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 figure will be compared to terms that define whether any payout is due under the cat bonds tropical cyclone coverage. The $150 million of notes are able to payout in increments of 0%, 35%, 70% or 100% of principal, depending on how severe the event was and how high the resulting modelled loss was calculated to be.
It continues to look as if typhoon Kammuri may not be strong enough to trouble the new Philippines catastrophe bond, given it is still a much weaker storm than the only historical typhoon that has been analysed and could have caused a payout.
As we explained last week, in the historical modelling analysis for this Philippines cat bond deal, the only storm in the catalogue that resulted in a high enough modelled loss to trigger a payout was 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.
Hence, for typhoon Kammuri (Tisoy) to result in a loss to holders of the new Philippines catastrophe bond notes, it seems the storm would still need to intensify much more than forecasts currently suggest will be the case.
There could be some uncertainty here though, as the post event loss calculation will likely look at factors such as wind speed etc, related to the storm itself, but also some kind of measurements of exposure as well that could take into account how highly populated the region a typhoon impacts are.
Given Kammuri may come very close to Manila as it crosses Luzon and we can’t know how this could sway the modelled loss output after it is calculated, it could raise the potential for the Philippines cat bond to be considered at risk by those who know the post event loss calculation process factors better than we can.
That said, Kammuri still looks like it won’t be an intense enough storm to trouble the Philippines cat bond at this stage. But it is one for the cat bond market to watch, as well as reinsurance interests with capacity deployed into the country.
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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