Secondary catastrophe bond market trading was active during August

by Artemis on September 13, 2011

Primary catastrophe bond market issuance was slow as expected during the month of August. Traditionally not many new deals come to market during that month as the Atlantic hurricane season picks up, and reflecting that, no new deals began marketing although a few cat bonds completed which had been initiated during July. The secondary market for trading in cat bonds however was quite active according to monthly insight from Plenum Investments, a Zurich based investment manager with a focus on insurance-linked securities.

Plenum comment that the first three months of August saw secondary cat bond price movements reflect the expected seasonal trends as U.S. hurricane exposed cat bonds priced higher. Plenum also saw pricing of U.S. thunderstorm exposed cat bonds trade at increased volumes and lower pricing levels reflecting the increasing impact of covered losses from the tornadoes experienced across the U.S. during April and May. Here Plenum are referring to the Mariah Re cat bonds which we have discussed in recent articles. We suspect that pricing on the Mariah Re bonds will have decreased further during the first two weeks of this month given the recent updates to loss estimates.

During the last week of August the secondary market was dominated by hurricane Irene’s approach towards the U.S. eastern coastline. Plenum says that U.S. hurricane cat bonds with exposure in eastern coastal States traded lower as the market anticipated a potentially large loss event. Cat bonds with exposure in North Carolina saw the most dramatic price movements according to Plenum, and they say that had Irene hit North Carolina as a major hurricane it is likely that the attachment point would have been reached for at least some of those catastrophe bonds. As a result of the losses from Irene being lower than expected, Plenum say that they expect pricing on exposed cat bonds to recover their mark to market losses.

It is encouraging to hear of these cause-and-effect price movements in the secondary cat bond market as they reflect a market operating in an orderly fashion as investors and traders react to real-time events which could impact their positions.

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