European Reinsurers Brush Off Hurricane Irene

Cat bonds saw heightened activity; S&P holds rating action

Hurricane Irene's impact on the East Coast of the U.S., although not as severe as expected, will certainly have a substantial affect on insurers. Even so, reinsurance companies in Europe appear to have brushed the storm off, with shares rising 3% on Monday at the world's top three reinsurers.

Reuters reported that Munich Re, Swiss Re and Hannover Re all saw their shares go up in Monday morning trading as analysts said they did not see a need to change 2011 estimates based on Irene-caused losses.

Before the hurricane hit, cat bonds, as they are known, were actively traded, according to a Wall Street Journal report. The most active were, according to the report, those issued by Johnston Re Ltd. that provided coverage to the North Carolina Joint Underwriting Association and the North Carolina Insurance Underwriting Association; both are insurers of last resort in the state. 

In May, Johnston sold approximately $200 million of bonds that are 100% exposed to windstorms in the state on a per-occurrence basis. The bonds consisted of $70 million in Class A notes and $131.8 million in Class B bonds. They are rated by S&P at Double B-. A group of 2010 bonds also issued by Johnston and rated the same were also trading substantially.

Additional bonds with Irene exposure were 2009 Longpoint Re II Ltd. bonds covering Travelers Indemnity and Ibis Re bonds covering Assurant Inc. subsidiaries. However, Gary Martucci, director at Standard & Poor’s in New York, said in the report that although the Johnston bonds have primary exposure to both barrier islands and coastal counties in Irene’s path, the company’s policy is not to take action on any bond ratings until an event hits. “There is no guarantee those bonds will trigger,” he was quoted saying.

Reuters reported that S&P had issued a Friday statement that said, "Given the uncertainty of where the hurricane ultimately makes landfall, its subsequent course, and the resulting covered losses, we will not take any rating actions until after the event has passed through the U.S."

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