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Hurricane Ida – Early takeaways for the ILS market

New Orleans, United States. 30th Aug, 2021. Jax Brewery in the French Quarter of New Orleans roof blew off during the night as Hurricane Ida hit the city, Monday, August 30, 2021. nnPhoto by AJ Sisco/UPI Credit: UPI/Alamy Live News
Photo: Alamy Live News

With the clean-up after Hurricane Ida still underway, here are our early takeaways and points to watch for the ILS market.

• Unlike other surprise losses in the past couple of years, Ida looks like a routine modelled loss event in so far as natural disasters ever can be – which would be a relief to investors cautious about attritional perils and surprise claims. Its track was perfectly in line with expectations ahead of the storm to assist preparations, although its rapid intensification will highlight fears around increased future power of storms in a warmer climate. But whether power outages or post-event demand surge exacerbate the loss and cause any further headaches in the loss evaluation process, undercutting its well-modelled character, remains to be seen.

• As the event looks more expensive than Hurricane Laura, claims could rise further into nationwide reinsurance towers than the 2020 storm did – which would have a correspondingly greater impact on ILS returns as more writers participate further up towers. Equally, a larger concern will be how some of the struggling regional carriers handle the event – one retained loss is not a problem for their capital structure, but further major ceded claims will dent ILS and reinsurer returns and make for ongoing renewal challenges.

• As the third major loss event of the year, following Winter Storm Uri and the European flooding, this event could well begin to attach worldwide aggregate retro covers, and there is a risk it will be sizeable enough to lock occurrence retro as well. Sourcing aggregate retro or reinsurance coverage could become even more problematic or expensive in upcoming renewals.

• How fast the storm surpasses the $20bn threshold by industry and official PCS loss estimates will influence how much of the losses will pass into the ILW and retro market, as this is a key level where companies begin buying protection.

• This will not be a notable event for the remote-attaching cat bond market, as Zurich-based firms Twelve and Plenum pointed out in early notes on the storm. However, aggregate structures will pick up further erosions of deductibles – which Twelve argued should not produce a significant mark-to-market pricing reaction given the level of attachment buffers typically remaining at this point.

• Livecat trading interest pointed to the complexities in assessing the storm’s losses, of which much relied on its exact track, with a divergence in buy and sell appetite that illustrates the broad spectrum of early thoughts on the insured loss.

• How far Ida impacts return expectations and upcoming renewal cycles remains to be seen. Even at the higher end range of early loss picks for the storm, it is a manageable earnings event type loss for the industry.

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