According to industry press, insurance linked security and catastrophe funds are reporting varying performance results stemming from Super Storm Sandy (the “Storm” or “Sandy”), with some funds reporting greater mark-to-market losses than others.

The varying results can be attributed to a number of factors, including, but not limited to, the bonds underlying the fund in question, the geographical location of the risk (i.e. whether the bonds cover areas impacted by the Storm), and whether the fund portfolio consists of other insurance or reinsurance contracts, which, themselves, cover areas impacted by the Storm.  Timing of loss accounting with respect to secondary catastrophe bonds may also be responsible for differences in reported performance.  For example, some funds may account for the losses in October, whereas others account for them in November. 

Industry press acknowledges that the factors described above, including differences in accounting timing, make it difficult to accurately gauge October performance of the industry.  None-the-less, they note that, but for Sandy, October’s results would have been strong, with spreads in the secondary catastrophe bond market tightening at the beginning of the month until it became likely that Sandy would make landfall.  They also note that while the October results are out, the impact of the storm may come to bear on the November results when released.

We will continue to monitor this topic.