Amundi Pioneer predicts larger California wildfire ILS loss impact

by Artemis on November 29, 2018

The recent California wildfire outbreak proved a very difficult catastrophe event to estimate losses to insurance and reinsurance linked assets, as the numbers of properties destroyed by the fire and so the estimated costs kept rising as authorities uncovered more of the damage.

The Camp wildfire, in northern California’s Butte County was particularly challenging in this respect, with the total number of properties destroyed rising by thousands each day, leaving industry loss estimates relatively useless just hours after they were issued and exacerbating the challenge faced by ILS fund managers in trying to communicate accurately with their investors.

Asset management giant Amundi Pioneer Investment Management was not immune to these challenges and as we reported ten days ago, the ILS investment management team at the firm had communicated to the investors in their ILS strategies that given their broad exposure there would be some losses to pay.

The managers’ said at the time that Amundi Pioneer’s interval-style mutual insurance-linked securities (ILS) fund, the Pioneer ILS Interval Fund, was expected to face a “modest” impact from the ongoing California wildfire outbreak.

But within days the toll from the wildfires had risen by thousands more properties, as despite the fires no longer burning out of control the investigators were uncovering more damage and so the statistics on properties impacted rose dramatically.

At the time that Amundi Pioneer said the impact to their ILS fund NAV would be “modest” we had reported that the wildfires had destroyed some 15,500 structures across residential, commercial and so-called minor property structures.

But a few days later, as we explained at the time, the property toll had risen to around 20,000 destroyed, a significant increase.

As a result, the ILS portfolio managers at Amundi Pioneer have reported again to their investors on the potential impacts from the California wildfires, saying that now the impact to the Interval fund’s net asset value (NAV) is likely to be “moderate.”

That means an expectation of a larger level of loss, as the reinsurance linked assets invested in are considered more broadly exposed to the wildfires given the increased number of properties that were reported as destroyed.

That’s not to say the losses will be particularly significant to the fund, it is well diversified across many major reinsurance cedants and counterparties. But given the scale of the fires and the destruction they caused it was prudent to report to investors that the impact was no longer expected to only be modest, or slight.

Still, most of the exposure for ILS funds like Amundi Pioneer’s Interval strategy is likely to come from private ILS transactions, such as collateralized reinsurance, sidecars and private quota share arrangements.

The fund also has a $2 million position in the marked-down Cal Phoenix Re catastrophe bond, which may be a total loss if electrical utility PG&E’s infrastructure is found liable to have caused the Camp wildfire.

With the latest estimates suggesting an industry loss for insurance, reinsurance and ILS interests that could rise as high as $13 billion, any fund of the size of the Pioneer strategies is destined to take a share and Amundi Pioneer’s increasing of their loss expectation suggests everyone else in the market will be communicating similar messages to their investor base.

Read our previous coverage of this wildfire outbreak:

Mercury General’s reinsurance to cover $216m of its wildfire losses.

Expect $15bn to $19bn California wildfire property loss, says Corelogic.

California wildfires to cost over $10 billion “if not much more” – Aon.

California’s Camp wildfire toll rises by another 1,273 structures destroyed.

Wildfire losses should have been priced in, says Fitch.

Mutual & listed ILS funds decline further on wildfire threat.

Modest wildfire impact possible for Pioneer ILS Interval Fund.

Cat bond funds take NAV hit on wildfire cat bond write-down.

RMS puts Camp & Woolsey wildfire losses at up to $13 billion.

California wildfire losses rising, destruction nears 15,500 structures.

PG&E’s wildfire cat bond marked down for loss, traded at distressed price.

USAA cat bond & private ILS also at risk of wildfire losses: Twelve Capital.

PG&E sued over Camp wildfire, putting Cal Phoenix Re cat bond in the frame.

Wildfires could cost insurers $5bn to $10bn: Credit Suisse analysts.

Wildfires to drive up to $6bn industry insured loss – Moody’s.

Wildfire losses to hit record in 2018, pricing needs to change: A.M. Best.

Stone Ridge & CATCo fund prices dented by California wildfire threat.

Cat bond price volatility & discounts expected from wildfires: Plenum.

California wildfire most destructive ever, multi-billion losses expected.

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