The location of hurricane Ida’s anticipated strong-to-major hurricane landfall in Louisiana on the US Gulf Coast will be key to insurance-linked securities (ILS) market impacts from the storm, according to investment manager Twelve Capital.

Specialist catastrophe bond, insurance-linked securities (ILS) and reinsurance investment manager Twelve Capital said that based on the latest forecast track for tropical storm Ida, which is soon expected to become hurricane Ida, the impact to ILS positions in its funds would not be significant.

But, movement in hurricane Ida’s track over the next few days prior to landfall could take it ashore somewhere that the impacts and losses to reinsurance and ILS positions would be greater, making this a storm to watch closely over the weekend.

“Landfall is predicted to occur very early morning (local time) on Monday 30 August. It is likely that this storm will strengthen at least into a category 2, most likely even a category 3 hurricane,” Twelve Capital explained.

Adding that, “As always with major hurricanes, the exact location of landfall will be the key determining factor for insured losses and ultimately for the impact on Twelve Capital’s positions.”

As we explained earlier today, Ida threatens to become the first notable hurricane loss of 2021 for reinsurers & ILS markets.

But how notable that is depends on intensity and landfall location, to a large degree, as well as factors like surge height, forward speed of the hurricane and also its overall wind-field size.

All of this will factor into how much of an insurance, reinsurance and perhaps ILS or catastrophe bond market loss hurricane Ida could deliver.

At this stage, the latest from the NHC has tropical storm Ida intensifying relatively quickly to 65 mph winds and 75 mph gusts, as it moves towards a brush with eastern Cuba.

After that, the NHC warns that, “Steady to rapid strengthening is expected when Ida moves over the southeastern and central Gulf of Mexico over the weekend, and Ida is expected to be a major hurricane when it approaches the northern Gulf coast.”

The latest forecast advisory data from the NHC suggests hurricane Ida could reach mid-Category 3 strength prior to landfall, with 120 mph winds seen as possible.

Hurricane Ida forecast path and track

Twelve Capital explained the importance of the landfall location, saying, “The latest projection point towards this storm making landfall around 80-100km West of New Orleans in an area of Louisiana that is not as densely populated. In that case, Twelve Capital does not expect any significant direct impact on its ILS positions.”

But qualified this by adding, “However, as with all live events, there is a high level of uncertainty around the final strength and location of landfall. An intensification or a landfall in a more densely populated area, such as New Orleans, could result in significant increases in insured losses thus also affecting ILS portfolios. Whilst this is not expected at this point, it cannot be fully ruled out until landfall has taken place.”

So, the track hurricane Ida takes across the Gulf of Mexico as it strengthens into the currently-forecast up-to major Category 3 storm is key to the eventual quantum of ILS market impact.

Also driving home the importance of the landfall location in the quantum of insurance market loss was Andrew Siffert, Senior Meteorologist at broker BMS Group.

In his latest update on the storm that will become hurricane Ida, Siffert explained, “Either a strong Category 2 or Category 3 hurricane making landfall somewhere between Grand Chenier, LA, and the Mississippi Delta will be impactful to the insurance industry. However, the magnitude in terms of loss comes down to track.

“It is not until the catastrophe risk models start issuing stochastic track guidance that one realizes that a 50-mile difference in the landfall area can have a huge impact on the vulnerability and exposure that drive the loss.

“It could range from a simple single-digit billion dollar loss to a 10’s of billions dollar loss if the storm were to track closer to a major metro area like New Orleans. These models can be very sensitive to track and intensity, which is why the intensity forecast along with the track matters; but, at this early stage for track all scenarios within the NHC cone of uncertainty are on the table.

“This is why there is likely to be a large range in estimated insured losses over the next 24-hour hours.”

Modelled intensity guidance from Tropical Tidbits can be seen below, which continues to show that there are some models which anticipate storm hurricane Ida being a major hurricane in the Gulf of Mexico as it heads towards the coast.

99L model intensity guidance, storm or hurricane

You can also see the NHC’s peak storm surge map for hurricane Ida below:

Hurricane Ida peak storm surge map

This will be a weekend where anyone involved in catastrophe modelling, actively managing portfolios of risk such as in catastrophe bonds and ILS, or that is responsible for buying last-minute or live cat protection and hedges such as industry loss warranty (ILW) products, may find they need to stay glued to the tropics.

At this time we’re told there hasn’t been evident buying interest in live cat, although some tentative enquiries on pricing have been reported to us by some broker contacts.

Being a storm that is building and intensifying over a weekend, it is always more challenging to get live cat trades done. Right now may still be too early, while Sunday would likely be too late, making Saturday likely the day any trades would take effect and meaning brokers manning those desks may need to make sure they are available this weekend as well.

Insurance, reinsurance and ILS market interests can keep track of developing hurricane Ida over on our 2021 Atlantic hurricane season page and we’ll update you should a more significant threat develop.

Hurricane Ida landfall location key to ILS market impact: Twelve / BMS was published by:
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