Impact of hurricane Matthew on the Fund and on the ILS market
Hurricane Matthew will affect the performance the Entropics Fund’s coming weekly NAV with less than -1% and the performance of the Swiss Re Cat Bond index with approximately -1.7%. We expect this drawdown soon to recover, as the situation clears and coupon earnings continues. We could see some collateralized reinsurance deals being affected but since the Entropics Fund is not invested in these securities, the portfolio is not affected.
Hurricane Matthew is one of the most severe storms we have seen in the Atlantic for the past twenty years and the first major (category 3-5) hurricane to threaten landfall in Florida in the last decade. In its path over the Caribbean on its way to the US Southeast coast, we saw widespread destruction and loss of life. Haiti was severely affected by Matthew and now faces an immediate threat of starvation and disease following the hurricane. We feel deeply with all those affected by this catastrophe.
While Haiti is in need of immediate international assistance, it is worth noting that a $20 million payment from the Caribbean catastrophe pool was decided already on October 6, two days after the landfall, demonstrating the advantages of catastrophe insurance based on parametric conditions.
Regarding ILS, Florida is an important peril to the insurance industry and around 60% of outstanding capital of cat bonds are exposed to the region. As the hurricane passed so close to the Florida coastline, small differences in its path could have resulted in widely different scenarios. Gross loss estimates for the insurance industry, as we run data simulations, have during the storm ranged up to about $100 billion, depending on the hurricane’s path and strength. Finally, Matthew did not make landfall as a major hurricane in Florida, and stayed a bit of the coast and finally made landfall in South Carolina as a category 1 hurricane. Damages to the coastline were substantial, but the worst case scenarios for the insurance industry were avoided.
We will, of course, keep shareholders informed of any material development through the newsletter and news on our website.