Specialist manager of catastrophe bond and insurance-linked securities (ILS) funds Plenum Investments has said that it doesn’t imagine that the continuing wildfire situation in Los Angeles can have a meaningful impact on the catastrophe bond market.

Plenum Investments commented in an update to its investors that currently a “marginal” impact on the cat bond market is feasible from these California wildfires.

The investment manager said, “Because the fires proceed to spread uncontrollably, there’s currently no clarity concerning the extent of the damage. Nevertheless, there’s a high potential for damage to the insurance industry.

“The Palisades Fire particularly is raging within the Santa Monica and Malibu area, with among the most costly real estate in California and a median constructing value of over $2 million. The loss potential for the fires is estimated by some analysts to be between $6 and $13 billion, with overall economic loss potentially reaching $50 billion or more.

“Nevertheless, though some CAT bonds, which cover multiple perils across the USA, do include wildfire, it’s unlikely that the present Los Angeles wildfires can have a meaningful impact on those bonds, since wildfire contributes only marginally to the chance of those bonds.

“To evaluate the chance of those bonds being triggered, we will look back to the 2018 Woolsey wildfire, which burned 97,000 acres (392 km2) within the Malibu area, an area about five times larger than the present Palisades Fire. This event wouldn’t have resulted in a default of those CAT Bonds.”

We detailed some sponsors of multi-peril catastrophe bonds that cover the wildfire peril in our latest article on these fires.

That article also noted that one analyst firm, J.P. Morgan, has now doubled its earlier insured loss estimate for the wildfires, to as much as $20 billion.

But there stays considerably uncertainty and it might be a while before more accurate modelled loss estimates can be found. Although clearly the insured loss costs of this developing catastrophe could also be relatively significant for the broader insurance and reinsurance industry.

Also read:

– JP Morgan analysts double LA wildfire insurance loss estimate to ~$20bn.

– LA wildfires: Analysts put insured losses in $6bn – $13bn range. Economic loss said $52bn+.

– LA wildfires bring aggregate cat bond attachment erosion into focus: Icosa Investments.