Twelve Capital Event Update

icn-dark-hurricane27 October 2023

Hurricane situation

On October 25th, Hurricane Otis became the first Pacific Hurricane to make landfall in Mexico as a Category 5 storm. In doing so, it eclipsed Hurricane Patricia (2015) as the strongest East Pacific landfalling hurricane on record.

Otis originated as a tropical disturbance in the Pacific Ocean, around 1,000km off of the west-coast of Costa Rica, and moved northwards while continuing to gradually strengthen. Otis officially formed on the 22nd October, and soon after underwent rapid intensification, from a tropical storm to a Category 5 hurricane in less than a day. The rate of intensification observed is one of the strongest on record. The storm subsequently headed into Acapulco, Mexico, bringing reported windspeeds in excess of 160mph. Since making landfall, the storm has continued to move inland, but has quickly weakened into a low pressure system.

There is one transaction in the catastrophe bond market that covers Pacific windstorms in Mexico: IBRD issued IBRD FONDEN 2020 Class B. This bond uses a parametric trigger design that relies on reported storm location and central pressure values. Given that the US National Hurricane Center (NHC) reporting of central pressure is not measured constantly but using intervals, this introduces uncertainty with respect to the central pressure estimate used in the trigger, especially given the observed rapid intensification. This ultimately means it is too early to provide certainty on the eventual pay-out, but given the latest estimates of central pressure, it’s probable that there could be pay-out in the range of 50%. We will continue to monitor the data coming from the NHC in order to quantify the potential impacts.

Twelve Capital continues to closely monitor relevant potential and actual catastrophe events and will issue specific updates on new major events which occur.