Monthly Archives: October 2009

Philippines Braces for Third Storm in a Month

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The Philippine islands are preparing for yet another storm as Typhoon Lupit heads towards the region. The storm is packing winds of 109 miles per hour and is expected to hit the northern islands Thursday.

This is bad timing for the Philippines.

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On September 26, the area was hit with Typhoon Ketsana, which killed almost 500 and injuring more than 600. And just one week later, on October 3, Typhoon Parma struck the Philippines causing $250 million in damage and killing close to 400.

Now, the government is moving fast to prevent even more deaths by evacuating residents from mudslide-prone areas.

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The previous two storms were blamed for the destruction of the homes of more than 7 million.

President Gloria Macapagal Arroyo has blamed extreme weather caused by climate change but her critics say the calamity was magnified by poor city planning and millions of squatters living along riverbanks and blocking waterways with their shanties. The urban poor, sources of cheap labor and votes during elections, make up for almost half of Manila’s 12 million people.

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Typhoon Fengshen struck the area in June of 2008, killing 1,400 and making it the third deadliest catastrophe of that year. If Typhoon Lupit does in fact strike the Philippines with the strength it currently has, 2009 is likely to turn out to be one of the deadliest and costliest years in Philippines history.

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Storm Summary 9

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Welcome to the ninth “Storm Summary” post of the hurricane season. Most Fridays from now until the official end of the season (November 30) I will post an update on past and present hurricanes in the Atlantic and Pacific, like the following:

NAME PEAK STATUS DATE LOCATION DAMAGE
Carlos Cat. 1 7/10 to 7/16 East Pacific None
Felicia Cat.  4 8/3 to 8/11 East Pacific None
Guillermo Cat. 3 8/12 to 8/19 East Pacific None
Bill Cat. 4 8/15 to 8/24 Mid Atlantic No major damage
Fred Cat. 3 9/7 to 9/12 South Atlantic None
Jimena Cat. 4 8/29 to 9/4 East Pacific No major damage
Linda Cat. 1 9/7 to 9/11 East Pacific None

Though the Atlantic has only seen two official hurricanes, the waters of the Pacific are seeing constant activity, due, in part, to El Niño, which is “the periodic warming of central and eastern tropical Pacific waters [that] occurs on average every two to five years and typically lasts about 12 months.” Although most people think of this phenomenon in negative terms for the damage it can spur on the West Coast, it is actually beneficial to the East Coast/Gulf Coast in the sense that warmer waters in the Pacific usually create conditions that suppress Atlantic hurricanes.

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Why exactly this occurs is not something I’m qualified to explain but, as I recall, it has something to do with warm and cool air mixing in a different way and creating a “wind shear” that helps prevent storms from developing.

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The International Research Institute for Climate and Society can probably explain it better. For hard proof of El Niño, consider the fact that the Pacific has seen 22 named storms, mostly tropical storms and hurricanes, while the Atlantic waters have seen only 10.

For constant, up-to-date storm information, visit NOAA. And for breaking information on the insured losses the storms create, check out the Insurance Information Institute and the Insurance Services Office.

Most importantly, don’t forget to check back next Friday for our tenth “Storm Summary” installment.

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Strong Prediction for Fourth Quarter Cat Bond Market

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The catastrophe bond market saw a very slow recovery (if we can call it that) in the beginning of this year, with the number of bonds issued down 33% year over year. But the fourth quarter is looking much more promising, according to a report from Guy Carpenter.

The report, “Cat Bond Update: Third Quarter 2009,”  says that various trends and activity within the cat bond market could result in a total of between $3 billion and $4 billion worth of issuance in 2009. Also encouraging is the report’s statement that new risk capital issued in the third quarter of 2009 rose 28.8% compared with the same quarter of 2008.

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Though the cat bond market is still severely behind its 2007 performance, the conclusion of the fourth quarter of this year may see 2009 catch up to 2008 in terms of issuance.

David Priebe, chairman of global client development for Guy Carpenter suggests both caution and optimism with views of the cat bond market:

Given the increase in risk capital and the performance of the two bonds issued in the third quarter — both in terms of pricing and size — a fourth quarter that would account for more than 40 % of the year’s total issuance is not unattainable. [However], redemptions resulting from cat bonds maturing and a fairly light Atlantic hurricane season should also increase demand for new issuance.

The report offers the following fourth quarter 2009 outlook:

  • Improvement in global financial market conditions and advances in the insurance-linked securities (ILS) collateral solutions — coupled with a stronger demand for issuance and the increasing capacity of investors — have resulted in a shift in the ILS market relative to the beginning of 2009.
  • Investors are increasingly focusing on capital deployment and stimulating additional primary issuance, which is contributing to spread tightening.
  • The consensus estimate for 2009 total issuance remains from billion to billion, implying a fourth quarter issuance rate of $2 billion to $2.2 billion.

Eleven more weeks of cat bond market activity will prove this prediction right or wrong.