California wildfires could affect the fund
According to an October 30 update by RMS, the expected economic costs of the October wildfires in California, will be between $6 billion and $8 billion. Losses in this range could affect some positions in Entropics’ portfolio. With current pricing on the secondary market, the effect on the NAV would be less than 1%.
The October wildfires have had devastating effects, with an estimated 8,900 structures destroyed according to the California Fire Authority. Rather than one large event, we saw a series of wildfires, starting on October 8-9 and raging until now.
As wildfire insurance coverage is quite comprehensive, most of the economic losses will be insured, and the event is likely to be one of the costliest wildfires ever. This will add further large insured losses to an already extreme year in terms of natural catastrophe costs.
The cat bonds that could be affected are bonds with an aggregate trigger, meaning that the trigger is based on the total insured losses for covered perils during the year. These bonds have seen the aggregate amount following large insured losses incurred during the intense 2017 hurricane season.
One cat bond, Residential Re series 10, is expected to have triggered. Entropics does not have a position in this bond. However, the sponsor of the Caelus Re V bond, where Entropics has positions, issued yesterday a formal notification of indicative losses for the bonds. This will be reflected in the coming NAV.
Loss estimates still show considerable variation and we will provide further information as it becomes available.