Hurricane Michael has strengthened to a category 4 Tropical cyclone and is expected to make landfall in Florida, east of Panama City, within the next twenty-four hours.

This event is expected to cause damage from wind, storm surge and inland flooding.

The Population density at Hurricane Michael`s expected landfall location is relatively low, due to the proximity of the Apalachicola National Forest, which is uninhibited territory. Panama City itself has only 37,000 inhabitants.

The potential impact on insurance-linked securities (ILS) Portfolio is not yet clear. The low Population density at the landfall location, and the fact that aggregate trigger structures have not suffered from meaningful prior attachment erosion this season will reduce the potential impact on Cat Bond and private ILS Portfolios.

AIR and RMS have published industry loss estimates for a category 3 hurricane in the range of USD 1.5 – 3bn. Giben the recent strengthening of Michel to a category 4, these estimates might be too low. Using a blend of similar stochastic event and historic Scenario analysis, Twelve Capital estimates insured industry losses at between USD 5 – 15bn. Please note that any estimate prior to landfall cannot be accurate and ultimate losses might be substantially different.

Event details
Hurricane Michael, currently located 290km south of Panama City (Florida) on the Gulf of Mexico, has strengthened to a category 4 hurricane. A US Air Force hurricane hunter aircraft has measured a minimal central pressure of 947mb and peak winds of around 210 km/h.
The Gulf of Mexico sea surface temperature in the area is currently around 29°C and remains conducive for some further potential strengthening before landfall. Landfall is expected to occur within the next twenty-four hours east of Panama City, Florida. After landfall, hurricane Michael is expected to weaken rapidly and to move further inland as a tropical storm.

Landfall location and loss expectations
This event is expected to cause insured losses from wind damage, storm surge and inland flooding. The population density at Hurricane Michael’s forecast landfall location and forward track is relatively low, which should reduce the potential for damage significantly. The map below (Figure 2) compares Michael’s expected track to that of Hurricane Irma in 2017, which moved across several highly populated areas causing USD 21bn of insured damage, according to the latest Property Claim Services (PCS) numbers. Also visible is the location of the Apalachicola National Forest East of Michael’s track (white area on the map), which is not inhabited and where insured damages should be minimal.

Unlike Hurricanes Harvey in 2017 or Florence in September 2018, this event should cause less damage from inland flooding because Hurricane Michael is expected to continue to move forward after landfall. In contrast, the other two events stalled and dropped significant amounts of precipitation over a limited area.
Based on the European Centre for Medium-Range Weather Forecasts forecast model, Hurricane Michael is expected to cause cumulative rainfall of up to 22cm across a band from North West Florida up to South Carolina over a period of five days. This compares to more than 50cm experienced recently with Hurricane Florence in North Carolina. Furthermore, many homeowner policies insuring against tropical storm risk do not cover flood damages caused from rainfall, so the majority of these flood losses will be absorbed by the US National Flood Insurance programme (NFIP).

Hurricane Michael is expected to cause a storm surge of up to 10 feet along the Florida coast. Due to the shape of the Western Floridian coast (which curves by a degree of almost 90% south of Tallahassee), a storm surge is also possible outside the path of the hurricane, as indicated below.

Potential impact for insurance-linked securities market
At this stage, with landfall still several hours away, it is extremely challenging to provide a base case for what the impact of Hurricane Michael might have on the ILS market in general and on the Twelve Capital managed portfolios in particular.

Several variables are explored below:
1. Risk coverage across the Cat Bond universe
Tropical cyclone risk in Florida is covered by the majority of Cat Bonds in the investable universe. This includes indemnity as well as PCS-linked trigger structures, with both occurrence and aggregate layers. A number of instruments are therefore potentially at risk from this event, however, ultimately we expect only a small number of positions to have a realistic probability of suffering a loss.
2. PCS-linked structures
Hurricane Michael would be the first major hurricane this year to cause significant insured losses. Given that aggregate deductible limits across most bonds have not suffered from any erosion post their annual resets, the loss absorption capacity of these structures protecting the insured layer is near or at its annual maximum. In addition, many PCS-linked Cat Bond structures exhibit lower pay-out factors in Florida compared to other states. The payout factor is part of the formula which determines the loss attributable to an individual Cat Bond.
For example, the Galileo 2017-1A Cat Bond features a payout factor for all US states (excluding Florida) of 0.48%, however, for any damage in Florida, the factor is of only 0.28%. In practice, this means that a hypothetical USD 50bn event occurring in Florida would cause substantially less attachment erosion compared to an event causing the same USD 50bn in insured losses elsewhere.

For the vast majority of PCS-linked Cat Bonds with aggregate structures, we do not therefore expect any write-downs from this event given that little or no prior attachment erosion has occurred. As always, any event loss above the franchise deductible would, however, result in a temporary attachment erosion reducing the buffer available for additional events occurring before the annual reset date.
3. Indemnity structures
As always, indemnity structures are the most difficult transactions to evaluate. The calculation of ultimate net losses will be highly dependent on any geographic or client segment concentration in the underlying portfolio of homeowner policies. Generally speaking, however, most sponsors tend to have higher concentrations in the Miami or Tampa regions and are less exposed in the Florida panhandle. At this point, prior to landfall, we do not have reliable estimates available to share given the uncertainty to exact landfall location, strength and timing. However, we expect a better loss experience for indemnity structures compared to Hurricane Irma, given the lower population density in the expected affected areas.
4. Valuations can differ from fundamentals
As also witnessed with hurricane Florence recently, secondary market valuations used to calculate fund performance are likely to differ from the actual expectation of ultimate defaults, as situations like these might result in temporary spread widening. Hence, investors should expect to see some additional levels of volatility in the near future.

Twelve Capital continues to monitor the situation extremely closely and will provide further updates as the situation becomes clearer, particularly post-landfall.

axessum GmbH offers investment advisory and investment brokerage Services of the Austrian Securities Supervision Act (WAG) 2018 for investment funds, certificates, bonds, stocks, ETFs, participation certificates, bearer and order debentures, as a tied agent pursuant to Section 2 (10) KWG on behalf and for the account of First Quant GmbH, Medienpark, Haus I, Unter den Eichen 5, 65195 Wiesbaden. First Quant GmbH is a free and independent financial services institution according to Section 32 KWG. It holds the following permits for investment Advisory and investment and acquisition brokerage services and is subject to supervision by the German Federal Financial Supervisory Authority (BaFin). First Quant’s registry number is 123328. The registration of axessum GmbH is available at the public register for tied agents kept by the Austrian Financial Market Authority (FMA

© axessum | Publishing information | Contact | Risk notice | Newsletter | Privacy policy | Design and development by INSEO Gmbh

Please read and accept the following information before continuing your visit!

The content of this Internet site was created exclusively for clients with sufficient knowledge and experience to make their investment decisions themselves and properly assess the related risks, hence for professional clients pursuant to the Austrian Securities Supervision Act of 2018 (WAG 2018). The information on the following pages is not suitable for private clients. The following website was created by axessum GmbH as the promoter of the above funds exclusively for information purposes. The information contained on the website does not constitute legal, tax, or investment advice. The tax treatment of investors depends on their respective personal circumstances and may be subject to future changes. All data are exclusively for the non-commercial own use of the visitors of the website. In addition, the information provided does not represent an advertisement or an offer, or an invitation to submit an offer to purchase or sell financial products. It is not a recommendation to buy or sell financial instruments. The company accepts no responsibility for any loss or damage which arises from having relied upon the information and data published here. Prior to taking an investment decision, you should in any case consult a professional financial services provider. The information presented on this website does not contain any guarantee or assurance of certain properties of a financial product or of services.

axessum GmbH, which offers investment advisory and investment brokerage services on its Internet site in respect of the financial services pursuant to WAG 2018 for investment funds, certificates, bonds, stocks, ETFs, participation certificates, bearer and order debentures of First Quant GmbH, Wiesbaden, operates exclusively on behalf and under the liability of First Quant in connection with the brokerage of financial instruments. In this respect, axessum operates as a tied agent of First Quant pursuant to Section 2 (10) KWG.Terms of Use By accessing this website and the investment funds, information, materials, and other content (hereinafter referred to as "the Website") therein, you confirm that you understand and accept the following Terms of Use. Access to the Website, selling restrictions This Website is not intended for individuals who are subject to a jurisdiction that prohibits or limits the publication or access to the Website (due to that individual's place of residence or domicile or nationality, or for other reasons). Users who are subject to such jurisdictions must inform themselves about such restrictions and shall be responsible for compliance therewith. Dissemination of the information contained herein is prohibited in many countries, unless the investment company has submitted a notice to or obtained a permit from the local regulatory authorities. axessum GmbH (hereinafter "axessum") accepts no liability for the suitability or admissibility of the use of the information on this Website in such jurisdictions. It must be ensured that the Website visitor who accepts this legal notice is the sole user. Should several individuals use the same access, the user who accepted the risk notice must ensure (e.g. by deleting the cookies) that any subsequent users will have to read and accept this legal notice. No offer The information contained on this Website is general in nature, is not addressed to a specific group of persons, and is only for information purposes. This information does not constitute an offer or a recommendation to make or sell an investment or to carry out any other transactions, and therefore cannot serve as basis for individual investment actions and decisions. Sole binding basis for investment decisions is the sales prospectus with the fund provisions, as amended from time to time, and the simplified prospectus in combination with the latest annual and/or semi-annual report of the investment funds. These are available in German free of charge with the respective investment company or with axessum. We recommend that you seek advice from a qualified expert for your investment decisions. Strategies/Products axessum GmbH does not offer potential investors comprehensive market comparisons of all strategies, but primarily informs about strategies managed by partners of axessum GmbH, i.e. about strategies which axessum GmbH markets on the basis of sales agreements with asset management companies. Disclaimer axessum and its data providers endeavour to ensure that the information on the Website is correct and complete on the publication date. Although this information is obtained from reliable sources, axessum and its data providers disclaim any explicit or implicit liability for the correctness, reliability, currentness and completeness of the information provided. In addition, opinions expressed on this Website are subject to change at any time without prior notice. axessum does not warrant for any changes to the information contained on this Website due to technical problems (e.g. interrupted connections, interference by third parties, viruses, etc.). Neither axessum nor its data providers shall be liable for direct or indirect losses, damage, or consequential damage caused, among others, as a result of access to, the use or query of, or surfing on this Website or linked websites. This Website exclusively serves marketing purposes and does not represent a prospectus within the meaning of the Austrian Capital Market Act or the Austrian Investment Fund Act. All data material contained on this Website was collected and evaluated with the proper care and diligence in reliance on reliable external and internal sources. Nevertheless, no assurance can be given as to the completeness and correctness of the figures and charts displayed. Therefore, all liability for any errors shall be excluded, subject to typographical and programming errors. Investment performance Information on previous performance does not allow any conclusions as to future performance. The prices of the shares and their income may either increase or decline. You may not receive the entire amount originally invested. Past performance is no guarantee for future performance. Information on performance does not include commissions and subscription and redemption fees. Exchange rate fluctuations may have an additional impact on the values of foreign investments. The risk factors are described in the fund prospectuses. A significant loss in value, up to the total loss of the entire capital invested is also possible. Taxes The tax treatment depends on the personal circumstances of each investor and is subject to change. Investors should seek advice from a tax expert prior to an investment decision. Rights of use, intellectual property rights This website is solely intended for personal, non-commercial use. Any content of this Website or any part thereof may not be edited, reproduced, disseminated, communicated to the public, or made publicly available without the approval of axessum. Links to this Website are only encouraged upon prior consultation with axessum, provided that they are designed as external links and refer to our start page. Links to third-party websites This Website may contain links to third-party websites. Links are provided only as a service. axessum, however, does not have any influence on the design and content of the linked third-party websites and does not identify with these. Therefore, axessum does not accept any responsibility for the linked third-party websites or the products or services offered there. Users visiting these links outside this Website do so at their own risk. Miscellaneous axessum reserves the right to amend these Terms of Use any time. The user shall be duly informed of the respective amendment by way of a notice on this Website. These Terms of Use are governed by and construed in accordance with the laws of Austria. All disputes which may arise out of or in connection with these Terms of Use shall be referred to the courts in Vienna. Should any provisions of these Terms of Use be or become invalid, this shall not affect the validity of the remaining provisions. Please address complaints to Provider identification according to Section 6 of the German Teleservices Act (TDG): Tied agent of First Quant GmbH axessum GmbH, which offers investment advisory and investment brokerage services on its Internet site in respect of the financial services pursuant to WAG 2018 for investment funds, certificates, bonds, stocks, ETFs, participation certificates, bearer and order debentures of First Quant GmbH, Wiesbaden, operates exclusively on behalf and under the liability of First Quant in connection with the brokerage of financial instruments. In this respect, axessum operates as a tied agent of First Quant pursuant to Section 2 (10) KWG. As the liable company, prior to the commencement of business of axessum GmbH as a broker, First Quant notified the German Federal Financial Supervisory Authority (BaFin) of the acceptance of liability as required under Section 2 (10) KWG, and axessum GmbH was entered in the register of tied agents of the Financial Market Authority (FMA) - available on the Internet site of FMA - as a tied agent of First Quant GmbH. axessum GmbH is engaged in investment and acquisition brokerage as a representative of First Quant GmbH. In this respect, First Quant GmbH accepts liability according to Section 2 (10) KWG. axessum GmbH is registered in the register of the Financial Market Authority FMA ( as a tied agent of First Quant. The registration number of First Quant GmbH with BaFin is 123328. Liability umbrella First Quant GmbH Medienpark Haus I Unter den Eichen 5 69195 Wiesbaden Managing Director: Sven von Aderkass Phone: +49(0)611-51049541 Fax: +49(0)6655-918165 Email: Internet: AG Wiesbaden, HRB 27335 VAT no: DE182330431 BaFin number 123328 Responsible regulatory authority: German Federal Financial Supervisory Authority (BaFin) Marie Curie Strasse 24-28, 60439 Frankfurt am Main Phone +49 (0) 228-4108-0 Fax +49 (0) 228- 4108-1550 Email: Internet: As a tied agent pursuant to Section 2 (10) KWG on behalf and for the account of First Quant GmbH, Medienpark, Haus I, Unter den Eichen 5, 65195 Wiesbaden, we offer you the following financial services on the following pages: investment advisory and investment brokerage service in respect of the financial services pursuant to WAG 2018 for investment funds, certificates, bonds, stocks, ETFs, participation certificates, bearer and order debentures. Your future contract partner, First Quant GmbH, has obtained the corresponding permits from the German Federal Financial Supervisory Authority. Information on axessum GmbH is available at the public registers of tied agents kept by BaFin and FMA. More information can be found at Publishing Information on this page.


I am an eligible counterparty within the meaning of the law WAG 2018 and I read the terms of usage and agreed.