2018-10-22 - Av Henrik Sjöholm

Update on Hurricane Willa

Hurricane Willa is approaching the west coast of Mexico as a category 5 hurricane. Though forecasts indicate that it will weaken somewhat before making landfall in the northern parths of Nayarit state or the southern part of Sinaloa state, the probability is high that it will make landfall as a major hurricane (category 3 or 4). The hurricane threatens to trigger one cat bond, also in Entropics Cat Bond Fund. Forecasts are still too uncertain to decide whether that will be the case.

The cat bond affected is issued by the World Bank to provide FONDEN with disaster relief funding. The position in Entropics Cat Bond Fund amounts to ca 1% of the net asset value.

FONDEN is Mexico´s governmental fund for natural catastrophes and has previously used the World Bank framework (Multicat) to obtain cat bond protection. The nominal value of the bond is $110 million. It has a parametric trigger mechanism based on central pressure before landfall. The pressure is measured in a defined region some distance from land. Based on the central pressure at the measurement point, the bond can trigger fully or partly accordingly:

measured pressure ≤ 920 hPa 100 %
920 hPa < measured pressure ≤ 932 hPa 50 %
932 hPa < measured pressure ≤ 935 hPa 25 %

 

Currently (5 p.m. DST), the hurricane’s central pressure is 925 hPa. The hurricane is estimated to reach the measuring point Tuesday evening, CDT. Forecasts indicate some weakening prior to that caused by increasing wind shear, but it is still unclear whether this will cause the pressure to exceed the threshold at the measuring point.

Since Willa reached storm force Saturday evening CDT is has deepened ant strengthened very quickly and was by Monday evening CDT a hurricane category 5.

 

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