2017-09-07 - Av Henrik Sjöholm

Extensive destruction in Irma’s path – still threatening Florida

Irma is still a category 5 storm with maximum winds up to 80 m/s, threatening landfall in Florida according the latest report by the National Hurricane Center (NHC). Market reactions reflect expectations that this could affect some cat bonds. Still, there is much uncertainty concerning the exact path and strength of the hurricane.

Cat bond market reactions

So far, the market via the brokers, has mostly offered to buy securities with exposure to Irma in potential loss regions well below under par.  However, we have only seen a handful of transactions showing that the majority of market is on hold, due to the present uncertainties of Irma’s future path and development.

We expect market reactions this week to be reflected in the portfolio NAV. If Irma is not expected to cause any losses to cat bonds, this fluctuation of the market price will be restored in coming NAVs.

Today, Entropics’ CEO Robert Lindblom also published a blog post on long term market effects of a major catastrophe.

Solid preparations in Florida

A category 4 or 5 storm making landfall will cause extensive damages to buildings and infrastructure, which will cause insurance losses. However, the damages can be somewhat limited by solid preparations and it is encouraging that authorities, organizations, private entities and people in Florida are carrying out preventive measures  for Irma. Besides securing personal supplies and safety, people have reinforced buildings using sandbags, covered windows with storm blinds and secured roofs. Authorities and private entities have distributed sandbags for free and issued recommendations that include moving loose items indoors to prevent them from becoming projectiles. Finally, many people have been ordered to evacuate the most exposed areas.

Similar measures are, of course, carried out in other states and regions threatened by the hurricane. Still Florida is worth studying closely, both because of current forecasts and of the fact that cat bonds have high exposure to Florida wind risks.

Widespread destruction of Caribbean islands

The effects of Irma in the areas already affected have been tragic. In the past two days, the hurricane has moved directly over several Caribbean islands, causing widespread destruction. According to authorities, 90 % of buildings on the island Barbuda were damaged, leaving 60% of the population of 1,600 homeless. The island was, for several hours, cut off from all communications with the outside world. From Saint Martin, 95 % destruction is reported. Reports from other islands directly hit by the storm are still sparse, but indicate extensive destruction of buildings and destroyed energy infrastructure causing massive power-outs.

Also, areas that were spared from landfall, such as Puerto Rico, have seen hurricane force winds and storm surges leading to power-outs and damages to buildings.

Sadly, a number of deaths has been reported, although it appears that early warnings, shelters and preparations have greatly limited the number of fatalities.

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