Cat bond index falls -0.27% on wildfires, market implies roughly $30bn industry event: Plenum

Analysis by catastrophe bond fund manager Plenum Investments suggests that the cat bond market is implying a roughly $30 billion industry loss from the Los Angeles, California wildfires, while also reporting that the Swiss Re Cat Bond Total Return Index fell -0.27% for the last week.

Updating investors and clients on the effects the California wildfires have had on the catastrophe bond market, Plenum Investments continues to believe the overall impact to the cat bond market will be limited.

This echoes the previous update from the cat bond fund manager, from January 9th, that said there could be a marginal impact on the catastrophe bond market from the fires.

In its update today, Plenum said that, “The CAT Bond market has reacted to the ongoing events and prices of around eight CAT Bonds have been marked down in particular.”

Adding, “A brief look at some of the industry-index linked CAT Bonds shows that the CAT Bond market is currently implying a USD 30bn loss to the insurance industry.”

Plenum Investments then also highlighted that the cat bond market index, the Swiss Re Cat Bond Total Return Index, fell -0.27% for the last week.

The investment manager also noted the following moves for its own strategies: Plenum CAT Bond Dynamic Fund: +0.05%;
Plenum CAT Bond Defensive Fund: -0.17%; and Plenum Insurance Capital Fund: -0.43%.

“Plenum Insurance Capital Fund and Plenum CAT Bond Defensive fund are holders of one of the affected CAT Bonds, Topanga Re, which is a CAT Bond that insures Farmers Insurance against losses exceeding around USD 2bn on a single event basis,” the company said.

The Topanga Re cat bond was one of those we highlighted as having seen its price decline in the secondary market after the wildfires.

We will report further on the latest movements of exposed catastrophe bonds in the coming days, as any new information becomes available to us.

“With a market share in California of around 10% the market considers the bond to be exposed,” Plenum explained.

The company noted that its Plenum Insurance Capital Fund has a 0.59% exposure to the Topanga Re cat bond, while its Plenum CAT Bond Defensive Fund has a 0.34% exposure to the bond.

Plenum Investments also pointed out that subrogation could become relevant if the cause of the wildfires were to be deemed down to electrical utility infrastructure, while the FAIR Plan assessments could elevate the industry loss and these wildfires are an ongoing event, meaning information is subject to change.

It’s important to note that the moves in cat bond valuations and the market index are based on estimates for potential erosion of aggregate attachments or exposure and should be considered mark-to-market at this stage, with no actual losses suffered so far.

Also read:

– LA wildfires: 17,027 structures damaged or destroyed. Insured loss estimates avg $32.5bn.

– LA wildfires: Moody’s RMS estimates insured losses to-date of $20bn to $30bn.

– LA wildfires: Gallagher Re estimates industry insured losses at $20bn to $30bn.

– LA wildfires: CoreLogic initial insured loss estimate is $35bn to $45bn.

– Alternative capital can provide wildfire capacity, but pricing a sticking point: Morningstar DBRS.

– Stone Ridge marks mutual cat bond / ILS funds the most on LA wildfires.

– Euler ILS Partners puts wildfire industry loss at $15bn-$17bn, highlights BI / ALE uncertainty.

– Wildfire losses may cause re/insurance pricing to firm as payback sought: Berenberg.

– BMS says LA wildfire insured losses likely to exceed $25bn. KBW analyses up to $40bn.

– Autonomous raises its LA wildfire loss estimate to $25bn, $18bn from Palisades fire.

– California wildfires: Subrogation topic raised, as utilities come into focus.

– ICEYE satellite analysis: Over 10,900 buildings likely destroyed in Palisades and Eaton fires.

– Catastrophe bond price movements due to LA wildfire exposure.

– Evercore ISI: LA wildfire insured loss $20bn-$25bn. Could be one event under reinsurance.

– LA wildfire losses to “notably exceed” $10bn, could approach $20bn: Gallagher Re.

– Mercury says LA wildfire losses to exceed reinsurance retention.

– LA fires: “Considerable attachment erosion” likely for some aggregate cat bonds – Steiger, Icosa.

– LA wildfires: Over 10k structures destroyed. Insured losses up to ~$20bn, economic $150bn.

– LA wildfire losses unlikely to significantly affect cat bond market: Twelve Capital.

– LA wildfires unlikely to cause meaningful catastrophe bond impact: Plenum Investments.

– JP Morgan analysts double LA wildfire insurance loss estimate to ~$20bn.

– LA wildfires: Analysts put insured losses in $6bn – $13bn range. Economic loss said $52bn+.

– LA wildfires bring aggregate cat bond attachment erosion into focus: Icosa Investments.