Topanga Re cat bond price recovers further, as risk of wildfire loss seen declining

We’re told by sources that the secondary market price for the $100 million Class A notes of Farmers Insurance Group’s Topanga Re Ltd. (Series 2021-1) catastrophe bond has recovered further, as the cat bond market views the risk of principal losses from the California wildfires as having declined.
Immediately after the wildfires, the Topanga Re cat bond notes were viewed as one of the indemnity per-occurrence deals that faced the highest risk of possible losses due to the Los Angeles, California wildfire disaster.
As we reported, the Class A notes from this Topanga Re cat bond had seen their secondary market pricing fall by as much as 20% soon after the fires, but with a wide spread between bid and offer indicating some uncertainty in the marks.
In our next update on cat bond price movements after the wildfires, we reported that the Topanga Re Class A notes pricing fell again, with them marked as low as for bids of 20 cents on the dollar on some pricing sheets.
Then, a week later, we reported that the Topanga Re cat bond notes had seen some recovery on certain cat bond broker pricing sheets, after Farmers issued its first loss estimate for the wildfires in a range from around $1.6 billion to $2.15 billion. As a result the notes recovered slightly to bids of 50 at the latest pricing at that time.
Now, we’re told that these cat bond notes have seen a further recovery on some pricing sheets, being marks for bids as high as 90 cents at this time, indicating a much-reduced view that they will attach at all and perhaps suggesting any loss will be minimal, or perhaps no loss at all will be suffered.
Other sources we’ve spoken with feel the notes may end up running clean and avoiding any loss, while some suggest that subrogation potential is also a possible factor that could reduce the ultimate loss of the sponsor, although that remains very uncertain at this time.
For those holding the Topanga Re Class A cat bond notes the reduced view of risk will allow them to mark their value back up in the portfolios. While, for any investors that might have looked to buy these cat bond notes while the pricing was at a distressed level, there could be value to be realised from that (we understand there may have been some trades that took place).
With this recovery of the Topanga Re cat bond, the mark-to-market impact of the recent wildfires has reduced somewhat for the catastrophe bond market.
But as we explained last week, additional names saw price decreases as well and the main threat of loss now seems to the $45.5 million Randolph Re (Series 2024-1)private cat bond that provides indemnity per-occurrence reinsurance from the capital markets to Mercury Insurance, which many have viewed as likely facing a total loss, plus the range of aggregate cat bonds that have seen their attachments eroded by the fires, some substantially so.
Recall that, we also reported back on February 4th, that the Swiss Re cat bond index fell by almost 1% after the fires. The Topanga Re bond recovery will now factor into the index as it is expected to rise today and has likely now absorbed most of the mark-to-market impacts seen to-date.