Catastrophe Bonds
Catastrophe bonds are perhaps the most direct bet on the potential disaster: Insurers issue them to transfer risk of losses related to events like hurricanes to investors.
The Swiss Re Cat Bond Index, a widely-cited gauge for catastrophe bond performance, hasn’t moved on the news as it updates only on Fridays. The index suffered a decline of 16 percent last year during hurricane season that took about nine months to recoup. However, the benchmark hasn’t had a negative year in data going back 15 years.
But some mutual funds that invest in reinsurance products like catastrophe bonds are already feeling the impact of the storm. The $5.8 billion Stone Ridge Reinsurance Risk Premium Interval Fund fell 5.2 percent yesterday, its biggest one-day decline since last September when Hurricane Irma approached Florida. The fund provides regular payments to investors but can lose money if storm damage costs are too high.
Mortgage-Backed Securities
The collateral for more than $20 billion worth of loans bundled into securities are located in North Carolina, South Carolina and Virginia, according to Morgan Stanley. Some $8.3 billion worth of property sits within 25 miles of the coastline. The last time a hurricane of this magnitude struck South Carolina, it caused $4.2 billion of insured losses, the bank said.
This article was provided by Bloomberg News.