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Amundi Pioneer’s ILS fund wildfire loss expectation rises again


Asset management giant Amundi Pioneer Investment Management has again raised its expectations for the level of losses its interval-style mutual insurance-linked securities (ILS) fund will face from the recent California wildfires.

The asset manager had initially been expecting only a “modest” impact for its Pioneer ILS Interval Fund from the ongoing California wildfire outbreak, which invests across the spectrum of ILS and reinsurance linked assets.

As we explained last week, Amundi Pioneer’s expectations for the impact to their ILS fund NAV increased as it became clear that the numbers of properties destroyed by the fires in California had increased significantly, saying that its view had changed to a  “moderate” level of impact to the ILS Interval Fund’s net asset value.

The view has changed again, as it has become increasingly clear that the current upper-end of the insurance and reinsurance industry loss estimate from the wildfires, $15 billion, could even be breached.

As a result, Amundi Pioneer’s latest assessment is for a “material” impact to the Pioneer ILS Interval Fund NAV.

While the Amundi Pioneer ILS fund tends to avoid the riskiest layers in property catastrophe reinsurance programs, preferring to allocate its capital to higher layers, quota shares, sidecars, other private collateralized reinsurance deals and catastrophe bonds, the portfolio managers for the fund now see the California wildfire losses impacting more remote risk assets they have invested in.

Given these wildfires are likely to cause the largest economic and insured impacts ever seen for the peril, Amundi Pioneer believes that losses will be seen in some of the more remote layers of reinsurance programs, with some likely to be triggered, as well as the riskier working layers.

Hence its worsening assessment of the potential NAV exposure for its Interval ILS Fund.

This experience is likely being repeated across other ILS fund managers, especially those that communicate more frequently with their clients.

When the first industry loss estimates came out for the California wildfires, the numbers of properties destroyed were cited around the 13,000 mark. Further estimates were released when that number had reached around the 15,000 to 16,000 point and now that the number has reached 20,000, including the so-called minor structures some of which are insured, the expectations of loss have risen again.

It’s a tough job being an ILS fund manager, a reinsurer or a retrocessionaire, when complex catastrophe loss events strike. Particularly so when investors expect insight into potential losses in near real-time, but cedants only report their estimates of losses as and when they are able (sometimes weeks or months after).

Amundi Pioneer’s experience reflects the challenges faced in reserving for events such as these, where best efforts are taken based on the available information and latest loss reports, but with so many moving parts loss estimates can move rapidly upwards as well.

The only industry loss estimate that came after the total extent of the property damage was understood was the recent one from Moody’s, that suggests up to $15 billion of industry losses.

But plenty of sources in the market are now discussing the fact that the eventual bill could be even higher than that and our sources are expecting the final industry bill to be above $15 billion now.

These wildfires have been extremely challenging for the industry and it’s no surprise they have contributed to the lateness associated with renewals and are a contributor to the capacity crunch that’s developing in retro markets.

Read our previous coverage of this wildfire outbreak:

Hours clause questions raised over California wildfire reinsurance claims.

Camp wildfire industry loss up to $9bn: AIR.

Woolsey wildfire industry loss at least $2.5bn: AIR.

Wildfire industry loss could be as much as $15 billion: Moody’s.

Amundi Pioneer predicts larger California wildfire ILS loss impact.

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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