2017-09-06 - Av Henrik Sjöholm

Hurricane Irma approaching Florida

The hurricane Irma is classified as a category 5 storm, with wind speeds up to 82 m/s. Irma is currently located in the north east Caribbean moving towards the west-northwest, at a speed of near 26 km/h. Within the next few days, it may impact several Caribbean islands with potentially catastrophic winds, storm surges and extensive rainfall.

National Hurricane Center’s latest forecasts indicate an increasing probability of a landfall in Florida on Sunday, which would make Irma the second major hurricane to make landfall in the United States this season after a 12-year hiatus since Wilma in 2005. If it makes landfall in the densely populated Southern Florida as a category 4 or 5 hurricane, we expect extensive insurance industry loss, also affecting some cat bonds.

It is still too early to make detailed modelling of potential effects of Irma, and small deviations in the hurricane’s path and strength can cause widely diverging outcomes. Yet, Entropics’ Cat Bond Fund, alike other cat bond funds, have relatively high exposure to Florida wind events. This is an effect of the overweight of Florida wind risks on the market, and reflects the fact that some 40% of hurricane landfalls in the US has occurred in Florida.

Entropics has considered historical hurricanes of a similar strength to assess possible losses. In addition, in our Monthly report we present the five historical events that would have the largest impact on the portfolio. The following table describes three possible outcomes from major historical hurricanes affecting Florida, if they occurred today.

​Event ​Total economic losses
(billion USD)
​Insured losses (billion USD) ​Cat bond losses

(billion USD, percent of total volume)

​Losses to the SEF Entropics Cat Bond Fund
Great Miami 1926
Category 4
​ 200 122 5 (20.1%) ​19.9%

Andrew 1992
Category 5
​80 – 100 ​50 – 60 0.​6 (2.2%) ​2.8%

Katrina 2005
Category 3
​75 45 1.3​ (5.1%) ​8.7%

 

Last year, Hurricane Matthew grazed the Florida coast as a category 4 hurricane before making landfall in South Carolina, resulting in no cat bond losses.

It is evident from the historical events that possible losses, even if the hurricane makes landfall in Florida, cover a wide range, and at this stage it is impossible to provide more detailed predictions. Entropics continuously monitors the event and will publish additional information as it becomes available.

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