Plenum says estimated $50bn hurricane Ian to dent its cat bond funds

Plenum Investments has published an update on the potential for losses to catastrophe bonds after major hurricane Ian’s impacts in Florida, saying that, at an industry loss level estimated to be around $50 billion, its cat bond funds could suffer a loss of roughly one annual target return in USD.

Earlier this week, right after hurricane Ian’s landfall impacts on western Florida, Plenum said catastrophe bond losses were anticipated and that its cat bond funds would be negative as a result, but it hoped the impact would be limited.

Now, Plenum Investments, the Zurich-headquartered specialist insurance-linked securities (ILS) and reinsurance investment manager, has said that the impact could be as much as one annual return cycle.

“Initial estimates suggest an industry loss of approximately USD 50 billion, which would be almost twice the level reached by Hurricane “Irma” in 2017,” Plenum explained in an initial post-event damage forecast for hurricane Ian.

Adding that, “At this level, we expect in our CAT bond funds a loss of approximately one annual target return in USD.”

The investment manager said this could result in a possible 4-6% loss for its flagship Plenum CAT Bond Fund, 9-12% for its higher risk and return focused Plenum CAT Bond Dynamic Fund, and 7-9% for its Plenum Insurance Capital Fund which invests in cat bonds and other insurance-linked assets.

Plenum notes significant uncertainty remains in exact levels of losses, how cat bonds will react and be affected, saying there are a number of other factors that could change the losses to its funds as well.

First, general valuation uncertainty, as the bid-ask spread for catastrophe bonds can be very wide immediately after an event. As a result temporary price decreases are expected “even for positions that will ultimately not be affected by the event,” the ILS fund manager explained.

Second, aggregate covers which might face a price decline with hurricane Ian a first qualifying event, may reset higher if no further events occur during their risk periods, so recovering value. Plenum itself is underweight these aggregate cat bonds, the manager said.

Finally, an expectation of a general repricing in the cat bond market.

On which Plenum said, “The already hard reinsurance market will demand an even higher risk compensation as a result of the event and additional tightening of reinsurance capacity. The CAT bond issuances expected in the coming months will accordingly be issued at higher spreads, which will affect the valuation of all outstanding positions in the market.”

Also read:

– Hurricane Ian industry loss estimated up to $40bn by Fitch.

– Hurricane Ian to force a reevaluation: Millette, Hudson Structured.

– Hurricane Ian to cause Florida indemnity & FloodSmart cat bond losses: Twelve.

– Hurricane Ian Florida insured wind & surge losses $28bn – $47bn: CoreLogic.

– Hurricane Ian economic loss in Florida around $65bn: RMSI.

– Hurricane Ian: A historic hit for Florida, no matter the quantum of loss.

– Hurricane Ian to impact cat bond funds. Plenum says hit to be “limited”.

– Hurricane Ian to add reinsurance rate momentum, disrupt Florida market: KBW.

– A particularly broad cat bond mark-down this Friday?

– Cat modeller data hinted at hurricane Ian’s $50bn+ industry loss potential.

– Hurricane Ian: Rapid weakening may see losses nearer $32.5b, says KBW.