Author Archives: Conor Meenan

About Conor Meenan

Conor is a senior consultant in the Capital and Resilience Solutions team in London. He works on a broad range of catastrophe bond transactions, and has particular experience in modeling parametric structures, leading on recent innovative transactions including MetroCat Re Ltd. 2017-1.

Additionally, Conor researches the application of catastrophe models to public sector resilience initiatives. This includes modeling critical urban infrastructure in Mexico for 100 Resilient Cities, modeling linear transport networks in coastal U.S. states, and working with the U.K. Department for International Development to assess the suitability of a catastrophe risk pool in Asia.

Conor holds a masters in Natural Sciences from the University of Cambridge.

The Sum of Its Parts: Wildfire in Multi-Peril Catastrophe Bonds

Water, wind, and wildfire. It’s been a devastating three months for the U.S.

Total insured losses from Hurricanes Florence and Michael, and the Camp and Woolsey wildfires are estimated by RMS in the range US$18.6 billion to US$28 billion (see table below):

September 1 Hurricane Florence $2.8 – $5.0 billion
October 8 Hurricane Michael $6.8 – $10.0 billion
November 8 Camp Wildfire $7.5 – $10.0 billion
November 8 Woolsey Wildfire $1.5 – $3.0 billion
TOTAL INSURED LOSSES   $18.6 – $28 billion

While California wildfires may seem far removed from Atlantic storms, for capital markets investors the fires may make the difference to how 2018 is remembered. Insurance Linked Securities (ILS) eyes are now trained on multi-peril aggregate catastrophe bonds.

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Unpacking Basis Risk

When catastrophe strikes, it is not unusual for the insurance payout to differ from the policyholder’s expectation. The possibility of such a discrepancy is referred to as “basis risk”. The term, however, can be ill-defined and easily misunderstood.

Therein lies the problem, without definition it is easy for the basis risk associated with a structure to remain unidentified and unquantified. If left unspoken, basis risk can lead to problems down the line, when events do occur. So, as a starting point, we can most simply define basis risk as the “difference between expectation and outcome”.

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