Risk Management Solutions (RMS) released a version of its insurance-linked security (ILS) portfolio, Miu, which includes a stress test said to allow investors to calculate the impact of multiple historical catastrophes at one time. The company said it conducted a series of tests using the ILS portfolio and found that the impact of the 1926 Great Miami Hurricane and the 1811 New Madrid Earthquake in one year would trigger 40%, or $4.7 billion, of the bonds market.

“Although the likelihood of two major catastrophes like the Great Miami Hurricane and New Madrid Earthquake occurring in one year is minimal, investors want to assess their worst-case scenarios and determine how a combination of events would impact the probability of a multi-year or multi-peril bond attaching,” said John Stroughair, VP of RiskMarkets, RMS’ ILS team. “With real-time access to these analytics and a deeper understanding of their risk concentrations, investors gain more control over their portfolios, enabling them to make better informed investment decisions.”

Other features of the latest version of Miu include regional reporting capabilities to assess risks of each region, more underlying event information, including information tables and detailed transaction information such as interest spreads, bond rating and swap counterparty for each catastrophe bond.

“Our Miu analysis demonstrates the magnitude of events it would take to create such a significant blow to the cat bond market and that it’s extremely unlikely,” said Stroughair. “The asset class is gaining increasing interest from investors who are attracted by the potential returns and the fact that it’s uncorrelated to the credit markets—whether the S&P moves up or down has no impact on the wind blowing or ground shaking.” 

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