Catastrophe bond indices recover from Mariah Re inspired dip

by Artemis on October 24, 2011

It’s been two weeks since we last looked at the Swiss Re Cat Bond Performance Indices to assess how they have performed and reflect the mood and sentiment within the insurance-linked securities market. Last time we looked, the price return index had dipped slightly due to the news about the losses that the Mariah Re cat bonds would be facing. Since then the indices have recovered and resumed their upwards climb.

The last fortnight has seen the launch of the second fourth quarter cat bond, Queen Street IV Capital Ltd. which began marketing as a $75m U.S. hurricane and European windstorm catastrophe bond. Meanwhile the latest Calypso Capital 2011-1 cat bond, the first deal to come to market during Q4, successfully completed at an upsized €180m.

The news regarding the Mariah Re thunderstorm and tornado cat bonds actually got worse, with the announcement that Mariah Re Series 2010-1 had been served an event notice as its sponsor suspected that it had been triggered as well as their lower layer of cover provided by the Series 2010-2 deal. Despite this the cat bond indices have both risen, suggesting that the market had priced any losses faced by both Mariah Re bonds into their trades.

So, 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 risen steadily in the last two weeks as the market looked forwards to new transactions and had already priced in the Mariah Re losses. Once the size of the Mariah Re losses are announced it will be interesting to see how the index reacts. This index closed on the 21st October at 94.84, we expect it to keep rising unless the expected Mariah Re losses grow significantly or a hurricane threatens U.S. landfall.

Swiss Re Global Cat Bond Performance Price Return Index

Swiss Re Global Cat Bond Performance Price Return Index

Now we turn to 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 continues its climb which has increased in speed in the last fortnight. This index closed at 217.34 on the 21st October, continuing to set new all time highs.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

We don’t expect there to be any major change to these indices if the Mariah Re losses are formally announced as it’s likely that they are already priced into the market. So the main issue which could affect the indices in the next fortnight would be a hurricane. With tropical storm Rina spinning in the western Caribbean there is a chance that this could happen if Rina decides to head for Florida. We’ll update you on the indices in two weeks.

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