Twelve Capital Event Update: Hurricane Beryl

Event Update: While the situation might evolve quickly, major Hurricane Beryl is not expected to generate significant losses for Cat Bond investors based on currently available information

3 July 2024, 8.00 am (CEST)

Initial landfall:
Hurricane Beryl developed in the Atlantic over the weekend and continued to strengthen as it approached the Windward Islands. The storm made landfall in Carriacou, Grenada (1 July at approximately 11am local time), as a Category 4 hurricane, causing significant property damage across many islands. Despite the severity, we do not expect any impact on our positions from this landfall alone.

Further developments:
Hurricane Beryl has since intensified to a Category 5 hurricane, making it the earliest storm of this category on record (the previous being Hurricane Emily on 17 July 2005). Increasing wind shear has started to weaken Beryl, with central pressure estimates beginning to increase, however the storm has proved resilient, maintaining Category 4 status as of the time of writing. While initial forecasts showed a broader range of potential tracks, more recent models predict the storm will pass close to Jamaica, with a strong probability of direct landfall. Land interaction and less conducive conditions in the Western Caribbean is expected to weaken Beryl as it continues its path towards the Yucatán.

Potential exposure for Cat Bonds investors:
Despite its elevated strength, hurricane Beryl’s path across the Caribbean islands, and potentially Yucatán, is not expected to generate significant losses for Cat Bond investors. Considering the possible landfall in Jamaica in particular, we identified one Cat Bond that could see part or all of its principal eroded. It represents approximately 33bps of the Cat Bond market. Its key features are as follow:

IBRD Jamaica Notes: Issued in 2024, these notes have the Government of Jamaica as the cedant, following a previous matured issuance. Proceeds from a payout are expected to be used for disaster relief and reconstruction. This USD 150 million single-tranche note has a parametric trigger based on the storm’s location and minimum central pressure. Minimum payouts, if triggered, would be 30% of the principal. Market losses from these notes could range between 0.1% and 0.33%.

In the event that as Hurricane Beryl moves towards Yucatán it intensifies in strength, a scenario that is not currently probable, then the IBRD Mexico Cat Bond (Class C) could be at risk. Even under these circumstances, market losses would remain manageable, as the market weight of the Mexico IBRD bond is approximately 28bps.

Towards the end of this week and over the weekend, Hurricane Beryl’s path remains quite uncertain. It could continue west into Mexico, or curve into the Gulf and then onto the US. As Beryl develops, we will keep investors updated with the latest predictions and estimates. Once the storm finally dissipates, we will provide a more detailed breakdown of its impact.