Tropical Storm Idalia is currently located in the northwestern Caribbean Sea north of Cuba and is forecast to intensify quickly into hurricane strength before making landfall in Florida on Wednesday afternoon Central European Time, the first major hurricane US landfall of the 2023 hurricane season.
The National Hurricane Center (NHC) currently forecasts that the center of the hurricane will approach Florida’s Big Bend area as a Category 3 hurricane. Idalia is expected to bring dangerous storm surge, heavy rainfall, and strong winds to portions of the west coast of Florida, the Florida Panhandle, southern Georgia, and the Carolinas by the middle of the week.
Florida’s Big Bend area is only lightly populated, and the track forecast momentarily places the densely populated Tampa Bay area and Tallahassee outside of the cone of uncertainty. Idalia is forecast to move over Jacksonville but will have traversed Florida and hence weakened before reaching Jacksonville.
It is worthwhile comparing Idalia to Hurricane Ian, which devastated parts of western Florida last year and caused severe price reactions of exposed cat bonds around landfall. In comparison, Idalia is a smaller, weaker storm and is likely to affect a less densely populated area of Florida. Initial modeling indicates that expected losses should be marginal.
Based on the day before yesterday’s forecasts that placed the track closer to Tampa, the expected losses on our funds are less than 0.4%. As the track forecast has moved the storm slightly further north, less interaction with densely populated areas is likely. We therefore anticipate only moderate market reactions for the storm and marginal if any losses to a limited number of cat bonds.
As usual, smaller events may lead to further erosion of annual aggregate structures that have been eroded from previous events. We are significantly underweight in such aggregate CAT Bonds.
There is still uncertainty in the track and intensity forecast and we will follow up with updated information if warranted.
