Catastrophe bond price return index climbs in last week

by Artemis on May 28, 2012

It’s time for another of our regular looks at the Swiss Re Cat Bond Performance Indices (our last article here) to see what they can tell us about movements in pricing and returns of outstanding catastrophe bonds and the general sentiment of the cat bond and insurance-linked securities marketplace. For the first time in a while both of the indices have risen and the price return index has managed its largest single week rise since mid-September last year.

Since last October the price return index has been on a gradual decline as the market adjusted to the rising rate and volume of new cat bond issuance, as investors both sold off secondary market positions and traded their portfolios to make room for new deals and achieve diversification in their cat bond portfolios. There has also been some rate pressure and also seasonality affecting the outstanding cat bond market prices. All of these factors have made returns harder to come by for ILS investors and ILS funds, but April saw improved performance from the majority of ILS funds and most investors we’ve spoken to believe the downward pressure will slow as hurricane season begins.

The last week has seen the U.S. Atlantic hurricane season begin with Beryl, the second named storm of the season, making landfall on the Florida coast late last night. This is an unusually early start to the season and this will have some effect on the cat bond indices. It’s generally expected that some fluctuation will continue in the indices for the next few weeks before they settle down into a seasonal pattern of slow gains.

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). The price return index saw the biggest weekly rise since last September, jumping to 92.25 on the 25th May.

Swiss Re Global Cat Bond Performance Price Return Index

Swiss Re Global Cat Bond Performance Price Return Index

Now 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). This index has continued its upwards climb, reflecting the increasing total return of the cat bond market as new issues are added to it. This index too has had its largest weekly gain since September last year, closing on the 25th May at 222.49.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

We’ll have to see how the indices perform over the next few weeks as primary cat bond issuance is forecast to slow while hurricane season takes hold. The performance of the indices will then be more predictable as catastrophe events will be the main impacts to their growth. We’ll update you again in a fortnight.

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