US flood catastrophe bonds fall sharply after Hurricane Milton
LONDON, Oct 11 (Reuters) -Catastrophe bonds issued by the U.S. National Flood Insurance Program (NFIP) fell sharply on Friday, according to a weekly broker's note, reflecting expectations that Hurricane Milton may trigger payouts for clean-up after the storm.
Catastrophe bonds are a form of insurance-linked security (ILS), which offer a way for institutional investors to access the insurance market.
Catastrophe bonds typically offer investors high returns, but issuers keep their principal if a specified event occurs, such as a hurricane or flood in a particular region.
Hurricane Milton brought widespread flooding and touched off a spate of deadly tornadoes on Florida's east coast this week, killing at least 16 people and leaving millions without power.
Seven NFIP-issued catastrophe bonds totalling $1.3 billion fell between 13% and 59% on Friday compared with a week ago, according to the note from broker Aon AON.N seen by Reuters. Aon and NFIP did not immediately respond to request for comment.
"We are monitoring the NFIP bonds that cover hurricane-induced flooding, however it is too early to tell the exact impact," specialist investor Twelve Capital said in a note.
The NFIP provides insurance to help reduce the social and economic impact of floods. Its catastrophe bonds provide protection against flood risk from named storms, according to data from specialist website Artemis.
Several other catastrophe bonds issued by insurers also fell sharply, according to the Aon note.
It could take weeks or months to determine whether the catastrophe bonds are triggered by the hurricane, during which time investors will be unable to redeem their bonds, industry sources say.
The hurricane would likely lead to "private trapped ILS capital", UBS analysts said in a note.
Reporting by Carolyn Cohn; editing by Diane Craft
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
