2018-11-11 - Av Henrik Sjöholm

Update on California Wildfires

Satellite image of Camp Fire, CA

Currently, large wildfires rage in California. Camp Fire in the northern part of the state is now the most devastating wildfire in California on record, with more than 6,700 destroyed structures, mostly in the city of Paradise, which is all but destroyed, and more than 23 deaths. In the southern parts of the state, the Woolsey Fire threaten the city of Malibu, and at least 150,000 homes have been evacuated. These events can affect cat bonds.

None of the fires is currently contained and the damages are set to increase. The Fund and the cat bond market have limited exposure to wildfires, but two bonds on the market can be directly affected by the fires. These cover liability issues for two energy firms, if found to be responsible for causing the fires. Entropics has one of these positions in the portfolio, and the size of the position amounts to some 1% of the AUM.

In addition, bonds that cover several risks in the US, where losses are aggregated during a risk period and if the total losses exceed the retention amount, be affected through erosion of retention amounts by the fires. Currently it is less likely that these events will trigger the bonds, fully or partly, as 2018 to date has been a year with relatively low catastrophe losses.

In the coming week, we expect secondary market prices to reflect the increased uncertainty concerning the affected positions. Entropics continues to monitor and to analyze the development, and we will provide additional information on how the events develop that could affect the Fund.

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