2016-02-09 - Av Henrik Sjöholm

Turn-out of MultiCat Mexico Class C determined

The MultiCat Mexico Class C bond, which was believed to have triggered fully after the initial reports on hurricane Patricia, making landfall in Mexico in October 2015, has officially triggered at 50%. This is the result of the claims calculation made by AIR Worldwide. AIR’s report is based on the final report on the hurricane by the National Hurricane Center (NHC), demonstrating that the air pressure was somewhat higher than initial measurements showed. Thus, $50 million are released for reconstruction after the hurricane, which was estimated to cause economic damages of $325 million.

For the SEF Entropics Cat Bond Fund, having booked the value of MultiiCat Mexico Class C at zero, this entails that the bond will booked at market value. This generates an instantaneous increase of the Fund’s value by some 3%, which will be reflected in the coming NAV.

The NHC report show that the hurricane, on making landfall, had a central pressure of 932 hPa and that the lowest pressure was 872 hPa. Calculations show that Patricia thus had a pressure below 932 hPa when entering the zone determining whether the MultiCat Mexico Class C was triggered or not. The bond’s trigger mechanism entailed a 50 % payout if the pressure in this zone was higher than 920 hPa, but not exceeding 932 hPa. A pressure not exceeding 920 hPa entailed a 100% payout. The conclusion of the calculations was that the bond was triggered at 50%.

The final report determines that hurricane Patricia was the deepest depression ever recorded in the Western Hemisphere and the second deepest ever recorded. The record is held by typhoon Tip in the Western Pacific in 1979, with a low pressure of 870 hPa.

Further information on the AIR report can be found at the Artemis.bm news site.

Image: Hurricane Patricia from space, NASA / CC-BY-2.0

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