Cat bond indices finish 2011 with an upward turn

by Artemis on January 4, 2012

At the end of 2011 both of the Swiss Re Cat Bond Performance Indices finished the year with an upward turn. Those who follow our regular articles discussing the indices and how they reflect the sentiment and health of the catastrophe bond market will know that recent weeks have seen the indices fluctuate as they came to terms with Mariah Re losses, priced in the end of the U.S. hurricane season and also the start of the European windstorm season.

The strong fourth quarter of catastrophe bond issuance in 2011, and a record December of new deals, saw many investors re-balancing their portfolios to take advantage of new opportunities to diversify their holdings. This tends to add to fluctuation seen in the cat bond indices as secondary market trading goes through periods of acceleration. Details on every cat bond issued during 2011 can be found in our Deal Directory. With observers predicting that strong issuance will continue into 2012 it’s expected that the indices will stabilise (unless there are any large catastrophe events).

First we turn to 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, which had seen a trend of decline through the last months of 2012 has finished the year with a slight upturn. This index closed on the 30th December at 93.82.

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 a basket of natural catastrophe bonds (which you can quote and chart through Bloomberg here). Again, this index finished the month of December with an upturn, reflecting the strong issuance in the last weeks of the year. It closed on the 30th December at an all time high of 218.43.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

The first quarter of the year historically see’s both of these indices recover some lost ground, reflecting pricing and issuance volumes, which can tend to gain in early months of the year. We’ll continue to update you throughout the year on how the indices develop.

Swiss Re recently shared an interesting graph (below) charting the total return of their Cat Bond Performance Indices between 2002 and 2011. The chart shows where major events impacted the returns on outstanding cat bonds and the recovery that total returns make following these major events.

Swiss Re Cat Bond Performance Indices 2002-2011 Total Return

Swiss Re Cat Bond Performance Indices 2002-2011 Total Return

Subscribe for free and receive weekly Artemis email updates

Sign up for our regular free email newsletter and ensure you never miss any of the news from Artemis.

Arthur Fliegelman January 11, 2012 at 6:05 pm

No comment.

I would just like nofitcation of new posts as they happen.

This is an excellent, highly useful site on ILS. I would recommend it highly as information source on the topic.

Elisabeth Löwenstein January 18, 2012 at 10:51 am

Hello,

i was wondering what caused the drop in both the Price Return Index and the Total Return Index between August and September 2011. Was that due to a major catastrophe or due to the Eurocrisis? And if so how exactly did it influence the index? Did investors pull back of the market, because their clients even less fond of any risk? I would be glad for an answer anytime soon. Thanks!

admin January 18, 2012 at 11:00 am

Hi Elisabeth. Actually that drop in August was due to the approach of Hurricane Irene which threatened much of the U.S. east coast where there are many exposed cat bonds. We covered this in an update at the time here: http://www.artemis.bm/blog/2011/08/29/catastrophe-bond-indices-drop-significantly-on-expectation-of-hurricane-irene-loss/

Whenever an event threatens, especially a U.S. hurricane landfall, you can expect to see some dip in the indices. It was a pronounced dip as Irene was such a large storm and could have triggered a number of cat bonds had the worst case scenario occurred.

Hope this helps!

{ 2 trackbacks }

← Older Article

Newer Article →