Twelve Capital Event Update – 22 February 2021

Over the course of the last 10 days, Winter Storm Uri has been breaking records as it caused widespread freezing temperatures, ice and snowfall across the United States. With an estimated 100 million Americans affected and 39 of the 48 continental U.S. states having been placed under some type of winter weather advisory or storm alert, Uri is expected to become the largest Winter Storm on record for the (re-)insurance industry. The southern states, which typically do not experience severe winter weather and are therefore far less equipped to deal with such events, have been the hardest hit states. The highest proportion of losses are expected to come from Texas, where the storm’s damage was compounded by the state’s isolated power grid, resulting in widespread power loss and severe water restrictions as well as a disaster declaration across all 254 counties in Texas.

As the effects of the storm are still ongoing and damage assessment will take time, current estimates of the anticipated industry losses are subject to a high degree of uncertainty. Karen Clark & Company (KCC) has issued an early estimate of USD 18bn, while Moody’s and Aon have commented that the losses are expected to be ‘in the billions of dollars’, which is exceptionally high for a Winter Storm. According to news reports, the majority of losses are expected to be in the commercial sector, which is an important distinction, since the majority of Cat Bonds are more exposed to losses from personal lines rather than commercial lines.

At present, Twelve Capital does not anticipate that this event will impact positions in its portfolios on a standalone basis. However, following a large number of events in 2020, in particular the hurricanes, tornadoes and wildfires in the United States, more junior aggregate covers are exposed to further erosion of their deductible for the active risk period, which may lead to the ultimate impairment of these positions. Twelve Capital’s portfolios are either underweight or zeroweight in such positions as compared to the market and hence a material impact to its portfolios is not excepted at this time.

Twelve Capital will continue to carefully monitor this situation as more details on the losses caused by Winter Storm Uri become available, and will provide an update should any material change in assessment emerge.