Catastrophe bond price return index continues downward trend

by Artemis on January 24, 2012

It’s time for another look at the Swiss Re Cat Bond Performance Indices which help to illustrate the performance of outstanding catastrophe bond returns. The indices track the performance of most of the outstanding cat bonds in the market so are a good indicator of the health of the market and investor sentiment in the secondary cat bond market. During Q4 of 2011 there was a general downward movement of prices and that looks set to continue in the new year.

The primary market is particularly active for January, with currently five insurance-linked security or catastrophe bond deals actively being marketed and also saw record primary market issuance in December. The high levels of issuance have resulted in a lower volume of trading in the secondary markets (generally) as demand for outstanding cat bonds lowered slightly while investors accommodated new deals. Investment manager and private bank Clariden Leu highlighted this trend in a recent fund performance report, they also note a number of 2009 cat bonds which are nearing maturity and will contribute to weakened secondary market prices. Therefore Clariden Leu expect a trend of weakening prices to continue into Q1 2012.

First of all 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 tracks the price returns and has declined further since our last update on the indices. It closed on the 20th January at 93.52 (chart below).

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 a basket of natural catastrophe bonds (which you can quote and chart through Bloomberg here). Now this index has displayed a continuing upward trend as the total return of the market increased due to all the new issuance. It closed on the 20th January at another all time high of 218.82 (chart below).

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

Both of these trends are likely to continue through the coming weeks if the primary market continues to be strong. We’ll update you again next month.

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