Do hurricane forecasts affect catastrophe bond prices?

by Artemis on December 13, 2010

Twelve Capital, an investment manager with a specialism in insurance-linked securities investments have today published the first issue of a new periodical publication which gives their perspectives on issues pertinent to their investment clients. The publication will also be of interest to anyone involved in the insurance-linked securities and catastrophe bond sectors.

One of the pieces in the publication is particularly pertinent to Artemis readers as it looks at catastrophe bond pricing and whether catastrophe bond prices are sensitive to hurricane season forecasts. Having just written about the active season forecast for 2011 this seems particularly timely.

Interestingly it seems they may be on to something as they found that prices dipped considerably more after the release of forecasts for the 2010 storm season (which were for a particularly active season) than in previous years where pricing barely moved after the forecasts were released.

Here’s a screenshot of the graph from their research which clearly shows the dip in the pricing index during 2010. To see a full size graph download the publication from Twelve Capital here.

We wrote earlier this year about the dip in the Swiss Re indices over the same period Twelve Capital refer to, and we referenced it to the active hurricane season forecasts, so it seems likely that hurricane forecasts have got the potential to affect the market when the predictions are for particularly active seasons. It will be interesting to see whether the recent publication of two forecasts for a very active 2011 Atlantic storm season have a similar effect on the indices when we publish an update next month.

You can download and read the full publication from Twelve Capital here.

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