Scenarios with all the ingredients of a Hollywood disaster movie are now being covered by the insurance-linked securities (ILS) market. From volcanoes and earthquakes rocking New York, Boston, and Washington DC, to a large space rock devastating part of the northeastern US — there’s a cat bond for that.

What makes the inclusion of such seemingly remote-chance risks in a new catastrophe bond of extra interest is that some are, as yet, unmodelled.

Estimating the risk and likely losses a catastrophic event would cause, such as a hurricane or earthquake, is done by modelling. A variety of analytical tools and computer-assisted calculations are incorporated in the modelling process, which also takes into consideration the location and historical data.

However, some unmodelled peril risks feature in one this year’s new cat bonds, notably coverage for volcanic eruptions and meteorite strikes in northeastern US. These are included in Chubb’s East Lane Re VI Ltd’s latest $250 million cat bond. Although such perils are unmodelled, rating agency S&P said in a pre-sale report for the series 2015-1 bond that, as far as volcanoes are concerned, there are no active calderas in the region covered, which stretches from Virginia to Maine.

Regarding meteorites, S&P noted the devastating 1908 event in Tunguska, Siberia, is regarded as a one-in-1,000-year occurrence. The Tungaska event is believed to have been caused by an asteroid entering the earth’s atmosphere and exploding in the air at an altitude of between four and six miles. It is estimated the explosion released 1,000 times the energy of the nuclear bomb dropped on Hiroshima in 1945.

And S&P said in its report: “In February 2013, a large asteroid exploded above the Russian city of Chelyabinsk. The object’s air burst injured approximately 1,500 people and damaged more than 7,200 buildings valued in excess of $30 million. According to our sources, this is the largest known object to have entered the Earth’s atmosphere since the 1908 Tunguska event.”

The agency noted the unmodelled exposures in the cat bond were generally included in a bundle of additional coverage and subject to a sub-limit typically below $500,000, while “exposures in excess of $500,000 were included in the modelling”.

Speaking to The Royal Gazette, Jim Lynch, chief actuary at the New York-based Insurance Information Institute, said the inclusion of unmodelled minor risks happened from time to time.

“Reinsurers always try to think about the unlikely happening,” he said.

A meteorite impact in the northeastern US “could happen”, said Mr Lynch. “It’s an extremely low probability, but if it hit in the wrong spot it would be like a Hollywood blockbuster.”

He added: “The ILS market is doing something that the traditional reinsurance market has always done — come up with a price for something that is an extremely remote risk.”

Mr Lynch noted that bundling such additional coverage can also bump up pricing.

In a report in February, reinsurance intermediary Guy Carpenter said it was likely this year would see “innovative catastrophe bonds issued, with structural features on a larger scale that may include non-modelled natural perils such as meteorite impact, wildfire and volcanic eruption”.

Chubb is not alone, insurer USAA included US meteorite impact as a peril risk within its sponsored cat bonds last year.

This year is shaping up to be another strong one for the ILS sector. During the first three months a total of $1.7 billion in cat bonds were secured, representing the highest amount of any quarter on record.

A picture of the general range and scope of cat bonds is seen in the risk exposures covered by the nine issued during the first quarter. They include exposure to hurricanes, earthquakes, cyclones and wind storms, and geographically covered Japan, Australia, Europe, but were predominantly US-centred.

When it comes to earthquake risk in the US, California’s San Andreas Fault may be the most widely-known seismic zone among the public, but a potentially devastating earthquake risk lurks in the area of New Madrid, on the border of Missouri and Louisiana.

US insurance firm State Farm’s Merna Re Ltd (series 2015-1) $300 million cat bond, which is registered in Bermuda, covers New Madrid earthquake risks.

The most powerful continental earthquakes in US history struck the area over a three-month period between December 1811 and February 1812. Shock waves were felt in distant cities, including Boston.

The US Federal Emergency Management Agency warned in 2008 that a serious earthquake in the New Madrid region could result in “the highest economic losses due to a natural disaster in the US”. A study by the Mid-America Earthquake Center, in collaboration with Virginia Tech, estimated direct economic loss from a magnitude 7.7 earthquake occurring in each of New Madrid’s three fault segments would be $300 billion.

Unlike meteorite strikes or volcanic eruptions in the northeastern US, the New Madrid risk “has been a pretty well quantified risk” for insurers and reinsurers, said Mr Lynch.

Bermuda was the domicile of choice for more than half of all ILS issued last year, with $16 billion-worth listed on the Bermuda Stock Exchange.

At the end of March the overall outstanding cat bond market globally stood at $22.1 billion, down $3.9 billion from the end of 2014 due to a number of bonds maturing, however much of that capital appears to have been subsequently reinvested with the outstanding cat bond market now an estimated $24 billion.