Update on Hurricane Harvey’s impact on the cat bond market
Before landfall, Hurricane Harvey was upgraded to a category 4 storm, making it the strongest hurricane to make landfall in the United States since Charley in 2004. It is also the first category 3 or greater storm since Wilma in 2005. During the night, Harvey was downgraded to a category 3 storm. The initial reports indicate that wind related losses are relatively limited and will be covered by direct insurance companies and, possibly, reinsurance.
The impact on the cat bond market on Friday was moderate. Swiss Re Cat Bond Total Return Index USD returned -0.34 percent last week after 32 weeks’ upturn. As the situation clears we expect market prices to recover, but some uncertainty remains and new facts are coming in. Harvey is now expected to remain over eastern Texas in the coming days, continuously weakening. This could contribute to further damages, mostly expected from flooding, where cat bonds are less exposed.
Entropics continues to analyze the portfolio’s exposure to the event, as well as market development, and will return with further updates.