ILS market is safe from hurricanes

Hurricane Matthew went through the Caribbean at the start of October and then passed along the Eastern coastline of the US, hitting parts of Florida, Georgia, South Carolina and North Carolina, before heading back out to sea and dissipating. It was followed closely by Hurricane Nicole, which made a direct hit on Bermuda on October 13.

“From a loss perspective, the impact from Hurricanes Matthew and Nicole will be fairly low for the catastrophe bond market. There might be small loss calls for some retro deals, but the attachment points were higher for catastrophe bonds and were not therefore triggered,” said Paul Schultz, chief executive officer at Aon Securities.

However, Schultz pointed out, despite these recent hurricanes the insurance-linked securities (ILS) market has for the most part been very calm and orderly in response to them. There were some price fluctuations in the secondary markets, but most bond prices have now recovered to where they were before the hurricanes hit, so there has been a minimal to low impact on the market.

Schultz added that even if there had been a substantial loss—if, say Hurricane Matthew had hit the Miami area—the market was prepared for such a loss.

“Many managers had briefed capital providers ahead of time on this,” he said. “Managers were prepared to have their organisations convert investment to pricing in new capacity.”