Klaus Brings European Windstorm, Triggers Back Into Focus

A fast moving windstorm that plowed through France and Spain could be a major loss event for European insurers but the jury is still out if any catastrophe bonds were effected.

At least 20 people were killed by Winter Storm Klaus that moved through the Bordeaux and southwest region of France. Major damage was also reported in northern Spain around the Galicia and Catalonia regions.

The storm most resembled Windstorm Martin which hit much of the same region in 1999, says Neena Saith, senior catastrophe response manager for RMS in London. She pointed out that if Windstorm Martin were to hit today the expected losses would be €2.2 billion in 2008 value.

Windstorm Martin was considered the most expensive European insurance event at the time.

But several factors may mitigate losses from Klaus, Saith says. This weekend’s storm was slightly further south than Windstorm Martin avoiding the more populated areas of Bordeaux. And although Klaus’ wind speeds were higher than the 1999 storm, the area affected was much smaller.

RMS is currently sending reconnoissance teams to the Bordeaux region this evening in an attempt to measure issues like storm surge and wind damage.

“We will also focus on the southeast region of France where there were some strong winds,” Saith says. “We are trying to clarify how much damage is in that region.”

If and how Winter Storm Klaus will impact several catastrophe bonds with a European windstorm component has yet to be revealed and may not be known for months or perhaps longer.

The weekend storm — if a triggering event — could become a major test for the cat bond market.

“If it’s an indemnity-based trigger the bond will need pay out if the underlying retention level is met,” says Thomas Guidon, a senior consultant with Milliman in Zurich. “In the Kamp Re example it took almost two years. This is what causes confusion in the secondary market.”

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