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NewsFlash: Hurricane “Milton” I Category 5 I Gulf of Mexico

Dear Investors

Hurricane «Milton», which is currently moving eastwards through the Gulf of Mexico as a category 5 storm, is forecast to make landfall on Florida’s west-central coastline during the night from Wednesday Thursday. «Milton» is going to weaken as it moves closer to the landfall location as the storm is influenced by the jet stream and increasing wind shear. This weakening will cause the small but very intense storm to grow in size, which means a larger area along the coast will be affected by hurricane force winds and storm surge. The hurricane force winds and storm surge will bring life threatening situations for many and we hope that people heed to the evacuation orders and leave the region in time. The track of «Milton» has moved slightly to the south in the latest forecasts, which could be good news for the people in the Tampa Bay area but would increase losses in Sarasota. The storm will move quickly across Florida and could bring hurricane force winds to the area around Orlando, thereby amplifying losses in the state.

There is still a lot of uncertainty in the forecast and the ultimate losses will highly depend on the exact landfall location and the strength of «Milton» as it crosses Florida but it is possible that the losses could match or exceed the losses caused by hurricane «Ian», which were around $50bn in insured losses.
We have modelled the expected wind losses form «Milton» to our funds and the CAT bond market. Although we see a substantial part of the CAT bond market being potentially exposed to losses from the storm, the overall impact based on that pre-landfall scenario will lead only to moderate losses as follows:

• Plenum CAT Bond Defensive Fund: -0.8%
• Plenum Insurance Capital Fund: -1.1%
• Plenum CAT Bond Dynamic Fund: -1.6%.
• CAT Bond Market: -1.4%

We have to reiterate, that these pre-landfall estimates are only a preliminary view and exclude losses from storm surge, which are normally excluded from homeowners’ policies. Any potential losses from the National Flood Insurance Program (NFIP) are also not included in this estimate – we are generally underweight these bonds vs the market. Initial market reactions to major catastrophe events lead to price volatility that often exceeds those initial loss estimates.

The available track information indicates that «Milton» did not come close enough to the Yucatan coast to trigger the Atlantic hurricane cover of the IBRD Mexico notes, which help to support the country’s disaster relief program against major natural catastrophe events

We will continue to monitor «Milton» and the potential implications that storm might have on the CAT bond and the broader insurance and reinsurance industry and will follow up with another newsflash post landfall.

Kind regards

Your Plenum-Team

 

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