By Sarah Mortimer
LONDON (Reuters) - Data aggregator Property Claims Service (PCS) is putting insured losses from superstorm Sandy at $11 billion, which currently leaves catastrophe bond investors safe from losses - but experts say the figure is likely to rise.
PCS has not formally released its loss review yet, but an initial estimate based on its first survey has been seen by cat bond funds and traders.
PCS is an industry loss compilation service used by the majority of cat bonds to define whether an insurance event qualifies for a payout under the terms of the deal.
Catastrophe bonds allow insurers to pass on extreme risks, such as those related to earthquakes or hurricanes, to financial market investors, and are seen as an alternative to reinsurance.
The initial figure from PCS, which bases its estimates on confidential insurer surveys and its own database of houses across the country, is much lower than estimates release by disaster modeling firms such as RMS, AIR Worldwide and Eqecat, which currently stand at $15 billion - $25 billion.
Losses topping $20 billion would trigger payouts on two catastrophe bonds sponsored by Swiss Re, the world's second-largest reinsurer, according to market participants.
The $11 billion loss estimate from PCS will not significantly impact the 67 percent of U.S.-hurricane exposed cat bonds.
"While investors will be relieved by the loss estimate from PCS, they will still be pondering the evolution of these figures in general," one UK-based cat bond investor told Reuters.
Some transactions known as "aggregate" bonds are at risk of losses, meaning it will only trigger if it accumulates enough losses on an annual basis to reach a pre-agreed attachment point.
Sandy could count as a qualifying event, say investors.
Cat bond issuers make regular interest payments to the bondholders, and, if no catastrophe-related losses are incurred, return the principal once the notes expire.
Investors usually receive interest payments and are required to pay out only under specific conditions.
Such payouts are a rare occurrence, with only eight of some 210 property catastrophe bonds issued since 1997 ever being triggered.
Historically, PCS has dramatically increased estimates from its initial guess as it gathers data from insurers.
The firm raised its estimates for 2011's Hurricane Irene by nearly 18 percent to $4.3 billion from its previous report.
Likewise, its initial estimate for Hurricane Katrina stood at $3.4 billion - increasing to $41.1 billion two years after the event.
(Reporting by Sarah Mortimer)