Catastrophe bond indices remain stable in last fortnight

by Artemis on June 6, 2011

It’s been two weeks since we last looked at the Swiss Re Cat Bond Performance Indices to see how their performance reflected the mood and state of the catastrophe bond and insurance-linked securities market. They are now beginning to mirror the way the indices behaved last year at the beginning of the hurricane season and we expect them to remain stable for the next few weeks and then recover some ground once we are well into the season.

The market has now come to terms with the impact of the Japan earthquake, has priced in the increased expected loss caused by the RMS hurricane model change and is now coming to terms with the potential impact, if only in pricing (as hinted at by PartnerRe), caused by the recent U.S. tornado outbreak. The way the market has adjusted and taken these events on board has been a sign of increasing maturity within the market, both from issuers and investors, as there hasn’t been any panic selling or strong reactions. Now the market needs to see some fresh issuance in the primary market to stimulate activity and provide much needed investment capacity (as investor demand for the asset class remains strong).

First we look at the Swiss Re Global Cat Bond Performance Price Return index, which tracks the price return for all outstanding USD denominated cat bonds (which you can quote and chart through Bloomberg here). This index had a slight wobble last week as it lost a little ground again, this may have been due to the information emerging that a tranche of Montana Re had been activated by the Tohoku, Japan earthquake and now being on-risk for the remainder of its current year risk-period. However the index recovered that ground in the last seven days and at its last close on Friday stood at a level of 93.37 (just .01 lower than a fortnight ago).

Swiss Re Global Cat Bond Performance Price Return Index

Swiss Re Global Cat Bond Performance Price Return Index

Next we look at the Swiss Re Global Cat Bond Performance Total Return index, tracking the total return of the basket of natural catastrophe bonds (which you can quote and chart through Bloomberg here). This index has now risen, albeit slightly, for the last four consecutive weeks. It closed on Friday at a level of 207.34.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

The first few weeks of hurricane season will be the real test of these indices and the appetite of investors and participants to trade and assume catastrophe risks. If the season passes with little impact to cat bonds then we’d hope to see primary market issuance pick up again and both indices climb back towards levels seen before the events in Japan.

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