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The Los Angeles, California wildfires have had a minimal effect on the Plenum CAT Bond UCITS Fund Indices, as the write-downs in value of exposed positions for the sector manifest largely in reduced gains being made, although resulting in a very slight decline for the Index representing the lower-risk cohort of catastrophe bond funds.
As we’d reported, a number of catastrophe bonds saw negative price movements on secondary market pricing sheets two weeks in a row due to the devastating wildfires that occurred in California in early January.
The declines were more meaningful on Friday January 17th as greater clarity over the eventual insurance and reinsurance industry loss from the California wildfires emerged.
We estimated the write-down across the cat bonds tranches with more meaningful price movements at around $200 million, after the January 17th marks.
But, these more meaningful price movements were only seen across a relatively small number of cat bond names, and with the pricing of the Plenum CAT Bond UCITS Fund Indices it’s clear the impact to investors from these write-downs has so far been minimal.
The roughly $200 million in write-down across 144A catastrophe bonds with exposure to the wildfires equated to less than 0.4% of the outstanding market at the time.
Which is relatively closely aligned with the biggest price movements we’ve seen, for any mutual, UCITS, or private catastrophe bond funds, but even in this case some recovery has already begun.
The Plenum CAT Bond UCITS Fund Indices are one way we can visualise the effect of these cat bond mark-to-market write-downs on investment funds in the catastrophe bond sector.
Overall, the effect of the wildfires has slowed the return accumulation over now two weeks of Index pricing, resulting in a 0.1% average Index return for the week to January 10th and a slightly slower 0.08% return for the week to January 17th.
However, since the last Index pricing of 2024, the Plenum UCITS cat bond fund Index average is still up by 0.59% to January 17th.
But there has now been a very slight decline for the January 17th pricing for the Low Risk Average of the UCITS cat bond Index, as the wildfire mark-downs impacted valuations for some of the cat bond funds within that lower-risk cohort, resulting in a very minor -0.02% drop for the week. Important to remember these remain mark-to-market, as no realised losses have yet occurred.
The higher-risk cohort of UCITS cat bond funds averaged a positive 0.18% return for the same week, Plenum’s latest Index data shows.
Which drives home the fact this wildfire event looks set to be absorbed well-within just a week or two of cat bond fund returns, perhaps a bit longer for any catastrophe bond fund strategies that have a more significant exposure to the California wildfire peril linked bonds that saw the negative mark-to-market movements (again remembering, these aren’t a realised loss).
Across a number of UCITS catastrophe bond funds we’ve been able to find recent pricing on, the range of negative movements appear to be from -0.1% to -0.35% across the two weeks of wildfire-exposed cat bond price movements.
But, for others we’ve seen, and some US mutual cat bond funds, any price adjustments seem to have fallen within accrued spread over the two week period, driving them to be roughly flat, or still positive but slowing their net asset value (NAV) gains.
As we reported earlier, analysts from Fitch Ratings have highlighted that any realised catastrophe bond losses from the wildfires are expected to be small, while the event is not expected to impede the cat bond issuance pipeline.
For full-year 2024, catastrophe bond fund strategies in the UCITS format averaged a 13.62% return.
Analyse UCITS cat bond fund performance, using the Plenum CAT Bond UCITS Fund Indices.
Analyse UCITS catastrophe bond fund assets under management using our charts here.
Analyse catastrophe bond market yields over time using this chart.
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