Solidum funds down 5 to 8% on Ian; core cat fund down 2x likely loss

Solidum Partners believes valuations of its core cat bond fund fell 5.5 to 6 percent in September on Hurricane Ian, some twice the expected ultimate hit to bond capital from underlying losses.

Cat bonds are in for capital losses and "some defaults are possible" for Florida-specific-programmes and storm flood related bonds, Solidum said.

The Solidum Cat Bond Fund (R-class, USD) has likely suffered a 5.5 to 6 percent loss to end-September, management said based on average bid price indications from brokers. As the most liquid of Solidum funds, the fund faces the highest risk of market "over-reaction," management noticed.

Half of that should be recoverable. Solidum expects that the final tally of underlying losses will render a hit to capital at only half of the September valuation loss, management said.

Rough estimates on the hit to capital were based on early post-landfall estimates of $28-47 billion from Corelogic and $42 to 57 billion from AIR, management said with note that early post-event uncertainty in impact analyses remains “fairly elevated."

Flood losses will be a significant part of the total loss. Market declines for cat bonds from the national flood insurer NFIP imply some $8 billion in losses to the programmes, in line with Corelogic estimates, Solidum noted. Deviation from that sum could push Solidum fund results up or down by some 2 to 3 percentage points from estimate.

Solidum's two less liquid event-linked securities funds have also suffered valuation losses, a review of broker reference bids for underlying assets indicated.

The Solidum ELS Fund, SC2 (A-1 Class, USD) is likely down 7 to 8 percent and the Solidum ELS Fund, SAC3 (I-1 Class, USD) is likely down 6.5 to 7.5 percent.

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