Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Will it soon be easier to issue winter storm catastrophe bonds?


Winter storms are an increasing hazard to re/insurance companies. Unpredictable, often severe, winter storms are a difficult risk to mitigate and risk transfer to the capital markets is not that common (yet). Some cat bonds cover European windstorms but not many (if any?) have been issued to cover U.S. winter storms.

Now Risk Management Solutions has released an update to it’s suite of catastrophe risk models for the U.S. and Canada to include new winter storm and convective storm models.

From the RMS press release: The RMS® U.S. and Canada Winterstorm models explicitly assess losses from snow, ice, freezing temperatures, and extra-tropical winds. “Winter storms are complex weather systems that can produce various types and combinations of damage from different perils, making them extremely challenging to model,” commented Tom Foster, product manager at RMS. “Using a unique approach, we have broken new ground by analyzing the individual and combined impacts of snow, ice, freezing temperatures, and wind to provide much more accurate damage estimates.”

He added: “In the last few decades alone, a number of winter storms have torn across areas of North America and caused substantial property damage, hitting both the primary insurance and reinsurance sectors. We calculate that if the 1993 Superstorm that descended on the eastern half of the U.S. were to reoccur today, for example, insured losses could reach $5 billion, mainly from the heavy snowfall and strong winds.” Winter storm damage is estimated to account for around 10% of the total average annual loss in the U.S. and Canada.

Having accurate risk models is a neccesity if these storms are ever to be included in a catastrophe bond or insurance linked security. As the really extreme winter storms are actually quite rare occurences (although getting more frequent) they seem like a perfect candidate for passing on to capital market investors.

A great source of information on windstorms such as this can be found on the Munich Re website.

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