Catastrophe bond price return index continues unseasonal recovery

by Artemis on June 25, 2012

Despite us being almost a month into the 2012 Atlantic hurricane season, when traditionally outstanding catastrophe bonds are seeing declining price returns, the cat bond price return index has continued to rise further recovering some of the ground lost earlier this year. Here’s our fortnightly look 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.

June is typically a month when the cat bond return index declines as primary issuance dries up due to the start of the hurricane season and U.S. wind exposed cat bonds see prices decline. 2012 has not run according to form though, we saw decreasing cat bond prices while primary issuance was high which was unusual to see, although easily explained by the influx of new capital to the space, and then in May the price return index started to recover and we’re still seeing unseasonal price rises in Jun, as we did in May. It’s a reversal of the trend seen at this time of year in previous years, how long it will last is uncertain but we should see the index begin to slow its recovery soon.

These price rises and the recovery of the price return index is the reason that many insurance-linked securities funds have been reporting their best months return this year in May. The rises seen so far in June should ensure that ILS funds offer investors another good month in June as well, keeping ILS fund managers happy and investors both happy and attracted to the space.

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 to 93.09 at its latest close on the 22nd June. It’s now recovered over 1% since it hit its lowest point this year at the start of May.

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). This index has continued its rise to hit another high of 226.09 at close on the 22nd June.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

This recent trend for unseasonal gains of cat bond price returns will be pleasing ILS fund managers and cat bond investors. It’s offering them an opportunity to maximise returns at a time of the year when they would often be seeing a slight decline, or at least a much slower return. It’s impossible to predict whether this will continue but it does look like June could be another very good month for ILS fund and cat bond investors portfolios.

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