Two cat bonds with occurrence structures affected by California wildfires: Twelve Capital

By Henry Gale

Jan 29 - (The Insurer) - Two catastrophe bonds with occurrence structures are understood to be affected by the southern California wildfires, Twelve Capital said in an event update on Wednesday.

The ILS investment manager said that it expected the majority of insured losses to be absorbed by primary insurers and junior reinsurance layers.

"We believe that there are currently two cat bonds with occurrence structures that are affected at this stage," Twelve Capital said, while noting that the impact on its portfolio would be limited.

One of the cat bonds is excluded from Twelve Capital's portfolio, while the investment manager said it was "underweight with the other relative to its market weight".

Cat bonds with indemnity or industry-loss-index triggers can either use an occurrence structure, where payouts are made if a single catastrophe event causes a loss greater than a certain value, or an aggregate structure, which pays if the total losses over a reporting period reach a certain threshold.

Twelve Capital said that the wildfires in Southern California "have contributed to an erosion of the attachment point in aggregate structures," with the full extent of that erosion "still being assessed".

Fitch Ratings had estimated earlier this week that the loss of principal to the cat bond market from the wildfires would be less than $250mn, absent further catastrophes in 2025. The ratings agency said that it did not expect any cat bonds it rates to be experience principal losses.