No direct cat bond impact but aggregate erosion possible from hurricane Debby: Twelve

With hurricane Debby private insurance market losses looking set to come in around the $1 billion or below level, ILS investment manager Twelve Capital has said that no direct impacts to catastrophe bonds would be expected, but continued aggregate erosion to certain cat bonds is more likely.

Swiss-headquartered cat bond and insurance-linked securities (ILS) fund manager Twelve Capital said that, “estimates by Moody’s RMS for total insured losses from Debby in the USA are low at around USD 1bn”.

Further explaining that, “this is a reflection of Debby’s passage over sparsely populated areas, modest strength, and limited flood insurance penetration.”

It compares well to an estimate from earlier today by reinsurance broker Gallagher Re, who said the combined wind and water-related insured losses for the private insurance market and public entities such as the National Flood Insurance Program (NFIP) or the USDA’s RMA crop insurance program, would likely fall below $2 billion.

Twelve Capital said it has been monitoring Debby through its lifespan since development and evaluated the potential impact on portfolios since its formation.

They noted that models had some challenges with Debby when it was a disturbance, with different models opting for east and west coast of Florida storms.

Similarly, there was also model uncertainty surrounding Debby’s continued development after its Florida landfall, but at the same time the models did accurately predict the storm’s strength in most cases.

Finally, given the rainfall event, Twelve Capital also highlighted the challenges in modelling flood risk, given limitations as to what is know about defences for flood as well as the lack of detailed data at times.

Specifically on the catastrophe bond market, Twelve Capital explained it expects, “No direct impact to the Cat Bond Market is expected, although there will be continued aggregate erosion to some bonds.”

The investment manager continued to say that, “The majority of insured losses from Hurricane Debby are anticipated to fall within primary insurers’ retentions under their reinsurance coverages,” as we reported earlier this week.

Even for those aggregate cat bonds that might experience some continued erosion of their retention or deductible, it would be anticipated to be a relatively minor event we would imagine and not be of significant concern.

Finally, Twelve Capital said it has analysed the impacts of Debby and its rainfall in relation to the FloodSmart Re catastrophe bonds sponsored by the NFIP.

The investment manager said, “We monitored the Cat Bonds sponsored by the Federal Emergency Management Agency (FEMA) with combined outstanding notional of USD 350m providing protection for the National Flood Insurance Program (NFIP) –at the time of writing we do not expect any losses to these notes, however the storm still has the potential to cause significant flooding across the Mid-Atlantic and North-eastern states.”

Also read:

– Hurricane Debby private & public market insured loss seen below $2bn: Gallagher Re.

– Majority of hurricane Debby losses to fall below reinsurance attachments: Moody’s Ratings.

– No impact to our cat bond funds expected from hurricane Debby: Plenum.

– Hurricane Debby not expected to trouble catastrophe bond market: Icosa.