Catastrophe bond indices continue upwards recovery

by Artemis on August 15, 2011

It’s two weeks since our last look at the Swiss Re Cat Bond Performance Indices, so it’s time to see how their performance reflected the mood and state of the catastrophe bond and insurance-linked securities market over the last fortnight. Both of the indexes have risen since our last look at them and the total return index is approaching all time highs again.

Since our last article about the indices, all of the catastrophe bonds which were being marketed to investors have now closed successfully. Mostly the spreads on these deals tightened considerably during the marketing phase as the demand from investors for diversifying perils was high. This means the pipeline is currently empty (at least publicly) but we have heard rumours of other cat bond transactions in the planning stage and waiting for the right moment to come to market. It’s traditionally a quiet time of year for the cat bond primary market but this year some are saying we could see a record third quarter of issuance after the lull of Q2.

Conditions are still ripe for the end of the year to see a large volume of primary market cat bond issuance as those who withdraw from the market in Q2 return to secure U.S. hurricane coverage after the current season ends. Some say that if we see another major catastrophe the market could take off.

Now the indices. 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 has continued its upwards trend, although it fell a little during the week ending 5th August (possibly due to price fluctuations when it was thought that tropical storm Emily may pose a threat to Florida?) but recovered in the last week to finish at its highest point since the end of March. It closed at 94.21 on the 12th August.

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 climbed further again in the past fortnight and is now very close to an all time high. If there are no market impacting events we’d expect this index to reach a high point within the next month or so.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

Both indices are tracking as we would expect for the time of year and hurricane season. The main threat to their continued growth is the formation of hurricanes which threaten land. There is going to be a heightened threat of storm formation later this week as conditions become more conducive. We’ll update you on how the indices cope with any storm threats in two weeks.

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