LONDON Jan 22 Data aggregator Property Claims
Service (PCS) upped its insured loss estimate from superstorm
Sandy to $18.75 billion, leaving investors in a catastrophe bond
issued by Swiss Re facing possible losses.
The PCS loss figure has only been made available to
subscribers, but was confirmed to Reuters by cat bond funds and
traders, who say the estimate is close to triggering a payout on
part of a catastrophe bond sponsored by Swiss Re, the world's
So called "cat bonds" allow insurers to pass on extreme
risks, such as those related to earthquakes or hurricanes, to
financial market investors, and are seen as an alternative to
Cat bond traders say insured losses of $20 billion or more
on the $80 million class F-4 notes from Swiss Re's Successor X
Ltd (Series 2011-3) transaction would trigger a payout from
investors who bought into the bond.
Swiss Re would use the cash to absorb some of its losses
from superstorm Sandy.
The bond protects Swiss Re from U.S. hurricane risk and was
issued in 2011.
PCS is an industry loss compilation service used by the
majority of catastrophe bonds to define whether an insurance
event qualifies for a payout under the terms of the deal.
The estimate has increased from $11 billion, which PCS
announced in November, but that figure was expected to rise as
PCS has always dramatically increased estimates from its initial
guess as it gathers data from insurers.
The estimate is still lower than estimates released by
disaster modelling firms such as RMS, AIR Worldwide and Eqecat,
which stand at $15 billion - $25 billion.
"For an event of the magnitude of Sandy, we are still in the
early stages for reaching the final PCS estimate," a UK-based
cat bond broker told Reuters.
Brokers have seen investors trying to get rid of their
exposure to the class F-4 notes on the Successor X bond,
believing that if PCS increased its loss estimate by another 10
percent, the transaction would likely trigger investor losses.
Such payouts are rare, with only eight of some 210 property
catastrophe bonds issued since 1997 triggering payouts.
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(Reporting by Sarah Mortimer; Editing by Helen Massy-Beresford)