Published February 27, 2013
LONDON – Credit Suisse (CS) has released around 80 percent of funds it set aside to protect investors from potential losses on superstorm Sandy after deciding they would not be impacted by the hurricane.
CS created a so-called "side-pocket" in November for investors in its CS Iris Low Volatility Plus Fund.
The bank said on Wednesday its dedicated insurance linked securities (ILS) fund was "highly unlikely" to be triggered by Sandy losses based on a recent industry loss estimate.
ILS are capital market vehicles that allow a company to shed a risk.
The most common form of ILS is the catastrophe bond - in which insurers manage their exposure to natural disasters by passing on potential losses to investors.
The most recent loss estimate from U.S. data aggregator Property Claims Service (PCS) - which is used to define whether an insurance event qualifies for a payout under the terms of the deal - put insured losses from Sandy at $18.75 billion.
Even though that estimate is expected to rise, Credit Suisse said the loss trigger of $35 billion "is now highly unlikely to be reached" and "there will be no impact from hurricane Sandy".
Side pocketing is a common practice for hedge funds, and developed during the credit crisis, when buyers for many assets disappeared and investors started demanding their money back.
- For more details on cat bond transactions, see the Thomson Reuters Insurance Linked Securities Community, click on http://financial.thomsonreuters.com/ils.
(Editing by David Cowell)