The catastrophe bond market is predicted to fall within the wake of hurricane Milton. But, as with other historical events, at the least a few of that drawdown is prone to be recovered and after the storm cat bond market yields are prone to rise, based on Jeffrey Davis, Partner & Portfolio Manager, Investments at Elementum Advisors, LLC.

Davis was speaking in an interview with CNBC TV yesterday, discussing the catastrophe bond market fallout from hurricane Milton.

While the initial impact, by way of the drawdown to the cat bond market index when it gets priced, is prone to be relatively meaningful, given the numerous uncertainty that is still there may be prone to be ground to get better.

We saw this with hurricane Ian in 2022 when the Swiss Re cat bond Index fell 10%, however the eventual hit to the catastrophe bond market was around 1%, or even perhaps less.

Speaking with CNBC, Davis explained why this tends to be the case and his expectations for the way the catastrophe bond market will move after hurricane Milton.

“We have now industry experts which can be currently projecting insured losses anywhere from $25 billion to $70 billion plus, with an economic loss that’s prone to be meaningfully higher. While it’s a very good guidepost, it does remain uncertain. It’s so near the landfall just 24 hours ago,” Davis explained.

Adding, “We do expect that there will likely be a drawdown just like the graphic that you simply had recently shown, like Hurricane Ian, where it was a ten% drawdown, hurricane Irma was a 15% drawdown, right after the events.

“Now, each of those drawdowns did subsequently get better as more information became available. It does take time to sort through the expected costs of the event, and so there may be a big selection of uncertainty available in the market.”

Davis went on to elucidate why uncertainty can take time to clear post-catastrophe event.

“The rationale for that’s, practically speaking, on the bottom, the priority stays with the primary responders who have to go help those that will not have evacuated and been within the storm’s path. It does take time for the homeowners to get in there and the insurance firms after that, once the impacted areas are stabilized, to give you a more accurate cost estimate, and in order that’s why you see the sharp drawdowns after events of this nature,” he said.

Moving on, the CNBC interviewer asked Davis for his expectations for catastrophe bond returns.

Davis of Elementum said, “For those who think in regards to the supply-demand dynamics, and the rationale that the catastrophe bond in addition to the insurance-linked securities market, exists in the primary place, is it provides capital from the worldwide capital markets to assist insurance firms pay claims after events resembling Milton.

“So, the availability of capital goes to be pulled down as insurers draw on it, to pay claims from the event and that is of course going to extend the general yield available in the market.

“For those who began in sort of the low teens, by way of the general yield for the catastrophe bond market, that’s going to go up.”

He continued to elucidate, “But it surely is just too early to say, given how close we’re to the storm, exactly what that impact goes to be. The market is priced on a weekly basis, and so tomorrow, we’ll get the primary have a look at the Swiss Re cat bond index following the storm, and that may ultimately tell us somewhat bit about where yields are prone to go after this event.”

Also read:

– Hurricane Milton loss $30bn – $50bn. Substantial ILS impact not expected: Euler ILS Partners.
– Mutual cat bond and ILS funds get better ground as hurricane Milton impact clearer.
– Milton loss below $50bn might not be sufficient to maneuver pricing: Jefferies.
– Milton could drive property catastrophe reinsurance rates up at 1/1 2025: KBW.
– Most mutual cat bond & ILS funds slid somewhat further on Milton’s final approach.
– Cat bond funds can still finish the yr positively: Twelve Capital’s Wrosch.
– Hurricane Milton losses likely below a 5% cat bond market impact: Icosa Investments.
– Hurricane Milton: Pre-landfall broker loss estimates ranged $15bn to $40bn.
– Hurricane Milton Cat 3 landfall in Sarasota. Worst case Tampa loss scenarios avoided.
– Hurricane Milton: Insurance, reinsurance, cat bonds, ILS able to respond.
– Some mutual cat bond and ILS fund NAVs fall further on hurricane Milton threat.
– Hurricane Milton industry loss at $25bn+ changes pricing narrative: Goldman Sachs.
– Hurricane Milton cat bond loss potential still in big selection: Icosa Investments.
– Hurricane Milton seen denting cat bond market -1.4% (excl. surge): Plenum.
– 33% probability hurricane Milton loss above $50bn. Would drive hard market: Euler ILS Partners.
– Hurricane Milton Cat 5 again. Tracks barely south. Uncertainty still high, loss range wide.
– Secure to say hurricane Milton likely a $20bn+ insurance market event: Siffert, BMS.
– Hurricane wind speeds forecast across entire Florida Peninsula as Milton approaches.
– Mexico’s catastrophe bond presumed secure from hurricane Milton.
– Stone Ridge leads managers cutting mutual cat bond or ILS fund NAVs on hurricane Milton.
– Hurricane Milton may very well be an enormous test for all the (re)insurance market: Evercore ISI.
– Hurricane Milton losses could amount to tens of billions, but uncertainty high: BMS’ Siffert.
– As hurricane Milton intensifies, Mexico’s catastrophe bond comes into focus.
– Material hurricane Milton losses could change 2025 property reinsurance price trajectory: KBW.
– Cat bond & ILS managers explore options to free money, as hurricane Milton approaches.
– Hurricane Milton: First Tampa Bay storm surge indications 8 to 12 feet.
– Hurricane Milton is biggest potential ILS market threat since Ian in 2022: Steiger, Icosa.
– Hurricane Milton forecast for costly Florida landfall. Cat bond & ILS market on watch.