Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Plenum Investments: Update – 90% probability of no loss to ILS fund from Sandy


Swiss insurance-linked securities investment manager Plenum Investments continues to be proactive in communicating with its investors on the potential impact that hurricane Sandy could have on its ILS fund. Earlier today we wrote that they expected no loss to and of the catastrophe bonds in their fund. That remains the case, but in a display of transparency Plenum have issued a second update with some information on the internal modelling and impact assessment that they have been undertaking.

In their first update, which it must be noted was pre-landfall of Sandy (which demonstrates their pro-active nature in keeping investors informed), Plenum said that if there was to be any impact to cat bonds they expected it to be to aggregate structures and that they do not invest in any aggregate cat bond structures in their fund. Hence they felt their ILS fund was safe from impact.

Now in their second update, they said that they have modelled the potential impact of Sandy on their portfolio of ILS and cat bonds with the available pre-landfall data. This analysis showed a 90% probability that there is no loss to any cat bond in the Plenum ILS fund portfolio. If there were to be a loss they say it would only result in a small drop in the funds performance of approximately 0.8%.

Based on the current industry loss estimates of $5 billion to $10 billion, Plenum still expect that the cat bonds held in their ILS fund will suffer no notional losses as the bonds they hold would require a significantly higher industry loss to be triggered.

This kind of transparency is key for investors in the ILS and cat bond space. Investors are becoming more savvy and want this kind of responsive information after an event which had the potential to impair their investment. Plenum is being extremely transparent here, and also very cautious, by making sure their investors are fully appraised of the results of their analyses and any potential for loss.

It is interesting that their modelling has shown this 10% chance of a loss based on the data available prior to Sandy making landfall. Other investors and cat bond traders will be making similar analyses and the small chance of loss goes someway to explaining some of the confusion in the secondary trading of cat bonds yesterday which saw bids and offers rarely meeting. That is often an effect of investors and traders just not being sure enough of the risks to their positions to commit to buying or selling.

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