Hurricane Florence Has Cat Bond Investors’ Attention

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Catastrophe-bond investors are trying to assess the potential fallout from Hurricane Florence that may force them to hand over cash.

If the storm’s path of destruction — which is aimed at Georgia and the Carolinas — causes enough damage in certain areas, some portfolio managers holding catastrophe bonds could be on the hook. The securities are used by insurance companies to transfer the risk of disasters. Issuers make coupon payments to investors, but if certain trigger events occur — like hurricanes — bond holders are responsible for losses.
As the storm approaches, catastrophic modelers such as Risk Management Solutions will provide portfolio managers with estimates of the loss of the sector they will use to find out what the investment loss means.

Or Portfolio managers are now struggling to get some of the inputs, Ho Hochberg said. Nasıl They will benefit from these figures trying to understand how these positions will be affected ”.

An index used to measure the performance of the disaster bond market lost more than 15 percent of a week during the hurricane season last year. However, the benchmark, which was only updated at the end of each week, has not yet reacted to the storm and has reached a record level.

Hochberg, whose firm stemmed from disastrous bonds, said the secondary market for securities is typically quite slow. But when Hurricane Irma entered the water last year, activity rose. He’s expecting the same thing from Florence.

Ağ We will start seeing some commercial activities, Ho said Hochberg. Se They’ll have all different hedging positions and potentially try to reduce positions – even if they have to suffer a loss, but it’s better than the loss if it’s completely erased. “

Hurricane Florence, the US is leaning toward the Southeast, and struck ashore early Friday morning. For decades, the most severe storm to hit the region is expected. According to the data provider Artemis, about $ 2.1 billion or about 6 percent of the $ 37 billion disaster and insurance-backed securities market specifically protects the United States against storms and hurricanes.

Investors seem unclear as compared to last year’s hurricane hurricane season: $ 11.6 billion in disasters and related securities, a record of $ 12.6 billion so far in 2018. The first year of issuers is the Federal Emergency Management Agency, which in July was transformed into capital markets with a special-purpose vehicle with bonds worth $ 500 million.

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