The Los Angeles, California wildfires have had a minimal effect on the Plenum CAT Bond UCITS Fund Indices, because the write-downs in value of exposed positions for the sector manifest largely in reduced gains being made, although leading to a really slight decline for the Index representing the lower-risk cohort of catastrophe bond funds.
As we’d reported, quite a lot of catastrophe bonds saw negative price movements on secondary market pricing sheets two weeks in a row as a result of the devastating wildfires that occurred in California in early January.
The declines were more meaningful on Friday January seventeenth 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 seventeenth marks.
But, these more meaningful price movements were only seen across a comparatively small variety 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 to this point been minimal.
The roughly $200 million in write-down across 144A catastrophe bonds with exposure to the wildfires equated to lower than 0.4% of the outstanding market on the time.
Which is comparatively closely aligned with the most important price movements we’ve seen, for any mutual, UCITS, or private catastrophe bond funds, but even on this case some recovery has already begun.
The Plenum CAT Bond UCITS Fund Indices are a technique we will visualise the effect of those cat bond mark-to-market write-downs on investment funds within the catastrophe bond sector.
Overall, the effect of the wildfires has slowed the return accumulation over now two weeks of Index pricing, leading to a 0.1% average Index return for the week to January tenth and a rather slower 0.08% return for the week to January seventeenth.
Nonetheless, for the reason that last Index pricing of 2024, the Plenum UCITS cat bond fund Index average continues to be up by 0.59% to January seventeenth.
But there has now been a really slight decline for the January seventeenth pricing for the Low Risk Average of the UCITS cat bond Index, because the wildfire mark-downs impacted valuations for among the cat bond funds inside that lower-risk cohort, leading to a really minor -0.02% drop for the week. Vital to recollect these remain mark-to-market, as no realised losses have yet occurred.
The upper-risk cohort of UCITS cat bond funds averaged a positive 0.18% return for a similar week, Plenum’s latest Index data shows.
Which drives home the very fact this wildfire event looks set to be absorbed well-within just per week or two of cat bond fund returns, perhaps a bit longer for any catastrophe bond fund strategies which 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 quite a lot of UCITS catastrophe bond funds we’ve been capable of find recent pricing on, the range of negative movements look like from -0.1% to -0.35% across the 2 weeks of wildfire-exposed cat bond price movements.
But, for others we’ve seen, and a few US mutual cat bond funds, any price adjustments appear to have fallen inside accrued spread over the 2 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 Rankings have highlighted that any realised catastrophe bond losses from the wildfires are expected to be small, while the event shouldn’t be expected to impede the cat bond issuance pipeline.
For full-year 2024, catastrophe bond fund strategies within 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.