No significant cat bond market impact from Hawaii wildfires: Plenum

The devastating wildfires in Maui, Hawaii are not expected to have any significant impact on the catastrophe bond market, specialist investment manager Plenum Investments has said.

Plenum Investments said today that “our funds are not expected to be directly impacted from this event.”

The wildfires have devastated one town in Maui in particular, Lahaina, with an estimated 1,700 buildings reportedly destroyed, sadly resulting in significant loss of life. Other wildfires have impacted additional areas of Hawaii as well.

Property exposure in the wildfire burn area is seen as in the low single digit billions of US dollars.

But Plenum noted that most catastrophe bond exposure to the wildfire peril is in California and where there is any exposure in Hawaii, it is a low contribution to cat bond expected loss and a low insured value component of any exposure in the cat bond market.

Plenum Investments stated, “Even though the death toll and devastation caused by the current wildfires in Hawaii are tragic and traumatic not only for local residents but also for visitors, we do not expect a major impact on the CAT Bond market.

“A few CAT Bonds cover wildfire on a standalone basis but their coverage is limited to the state of California.

“The majority of the bonds that cover wildfire include this risk in multiperil structures that cover all 50 states of the USA, and for those bonds, wildfire in Hawaii is only a small component, mostly below 1% of the Total Insured Value. Hence, our funds are not expected to be directly impacted from this event.”

It’s worth noting that cat bond sponsors State Farm and Allstate are both listed among the top property insurers in Hawaii, as of the end of 2022, while another cat bond sponsor Heritage also has property insurance operations on the islands.

There is a chance of some exposure in the insurance-linked securities (ILS) fund market should the wildfires trigger reinsurance layers for primary insurers.

ILS funds that write collateralised reinsurance could then find themselves exposed, although it would not be expected to be a significant hit to the ILS market overall, given insured values in Hawaii would be expected to only make up a relatively small proportion of exposure for any ILS fund portfolio.

Broker Aon said today, “Significant disruption to tourism in Maui, which is a major part of the local economy, will be realized for the foreseeable future. This, along with extreme devastation to homes, businesses, and other structures in Lahaina will likely drive economic and insured losses into the hundreds of millions USD. Given that this situation is still ongoing, losses may continue to increase.”