Swiss Re Insurance-Linked Fund Management

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Plenum cat bond fund takes 3.3% hit in March due to Japanese earthquake


Plenum Investments, a respected manager with a focus on alternatives such as insurance-linked securities and catastrophe bonds, saw a 3.3% decline in their Plenum Cat Bond Fund in March due to exposure to the earthquake in Japan through cat bonds they hold positions in.

Plenum’s fund had a 2.1% allocation of the Muteki Ltd. cat bond, which the market expects to record a total loss on. Plenum put 68% of the decline in their fund down to Muteki and the other 32% down to mark to market losses of other Japan quake exposed cat bonds which they hold allocation of. Plenum doesn’t expect a loss on the two other Japanese quake exposed cat bonds which they hold allocation of and say:

It is almost certain that the M9 Japanese earthquake will not cause these two bonds to default, therefore we expect the recovery of these positions which will result in a solid increase in the portfolio performance in the upcoming weeks.

Plenum says that they have written down one of the three Japan quake exposed cat bonds (Muteki we assume), so consequently won’t see any further declines in their fund due to that bond investment. So they are very confident that Muteki has defaulted which is inline with the opinion of other investment managers and market participants.

Plenum have a positive stance on the outlook for the catastrophe bond market after the event in Japan. They suggest that the market could benefit from the disaster as it will result in better compensation for new Japan quake exposed cat bonds. They also say that they expect re/insurance companies to increase their coverage in Japan for earthquakes and as a result this could result in higher issuance volumes.

Plenum certainly won’t be the only investment manager with a position in cat bonds to have seen a decline in their funds return and value in the last few weeks. All funds with an exposure to the market are likely to have seen a decline, and equally are likely to see a recovery (unless they were over-exposed to Muteki) as pricing returns towards par for deals which do not default.

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