Catastrophe bond indices continue to make steady gains

by Artemis on August 6, 2012

In the last two weeks the catastrophe bond price return and total return indices have made steady gains as their return to a more seasonal pattern continues. It’s time for another 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.

Both of the indices are now displaying more typical seasonal behaviour meaning that activity in the secondary markets has been less frenetic than it has perhaps been through much of 2012. It’s expected that the current pattern of steady, but slower gains will continue for a number of months while the U.S. hurricane season progresses. Any hurricane threatening the U.S. coastline will change the pattern and increase activity in the secondary market as traders look to offload at risk bonds. Aside from that the indices should be stable until primary market issuance picks up late in Q3.

Let’s look at the indices starting with 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). As you can see from the chart the index has remained stable over the last two weeks, actually making a small gain which will please investors in the market. It shows that even as the hurricane season continues there are returns to be made in the market. The index closed at 93.29 on the 3rd August.

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 to rise which is to be expected. The index closed at 228.95 on the 3rd August.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

This pattern of steady gains and stability will likely continue for the next few weeks. Any steady gains in price returns will be pleasing for investors and ILS fund managers as they will help them to recoup further on mark-to-market losses which affected the secondary ILS market earlier this year.

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