A major earthquake with a magnitude of 8.9 occurred off shore of the north east coast of Honshu. The quake triggered a huge tsunami, which caused major damages along the coast. Local authorities report over 40 deaths. The epicenter of the quake was 373km away from Tokyo and caused buildings to shake in the city. Power outages are widespread and public transportation is interrupted. It is too early to get exact damage information but it seems that most of the damage was caused by the tsunami and not by the quake itself.
At the moment we do not anticipate a loss to the notional values of the bonds held by the Plenum CAT Bond Fund. The fund holds three positions exposed to the peril of earthquake in Japan, totaling 8.7% of the fund’s assets. Approximately half of the exposure is in a position where the epicenter of the quake has to be within 70km of the center of Tokyo, this position is clearly not affected. The remaining exposure is split into two positions. The payout of one of the remaining positions is based on a parametric index which is calculated on the weighted peak ground acceleration measures of measurement stations across Japan. For the moment, we have only preliminary data and hence stressed the index calculation by applying the highest preliminary data on all index stations within the affected region. The so calculated index value is clearly below the attachment point of this bond, therefore we do not anticipate an impairment of this bond. We will recalculate the index as more data becomes available. The third position is exposed to the actual losses of the sponsor of that bond. At this point in time we do not have a loss estimate of the sponsor. According to the initial risk modeling of the bond, even a 1 in 1000 year loss to the sponsor from a Japan earthquake would not be big enough to trigger a payout. As it seems that the large metropolitan areas have only sustained minor damage, we do not anticipate that claims reach the necessary amounts to trigger this bond. Therefore we do not expect any impact on this position either.