Short-dated cat bonds trade last week, Gator Re price rebounds

by Artemis on January 12, 2015

Short-dated catastrophe bonds traded in the secondary market last week, as some investors continued to show an appetite to buy these bonds, likely to hold them to maturity. Also of note, the exposed Gator Re cat bond recovered some of its discount.

In the last week secondary catastrophe bond trading has seen a reasonable level of activity, as some of the short-dated, soon to mature cat bonds changed hands.

Short-dated cat bonds can be very attractive to hold for some investors and ILS funds, as they can provide opportunities to receive coupon on bonds which only have a few weeks left to run. Some of the short-dated bonds are also largely exposed to U.S. hurricane risks, which with it currently being off-season for hurricanes can make these cat bonds a safe(r) bet to invest in.

A number of the short-dated bonds that have traded in the last week also offer a coupon of 8% upwards, which compared to recent issuance is high and makes holding these notes very attractive for investors. Being able to buy higher coupon cat bonds, which have a reduced risk due to being off-season for hurricanes and then hold them to maturity is for some investors a very welcome boost to returns.

Also of note in the last week of secondary market cat bond trading, the under-threat Gator Re bond recovered some ground trading as high as 90.60, up from a pre-Christmas low of 79.00. The Gator Re cat bond has now entered a new risk period and so the aggregate loss total resets to zero for 2015.

Gator Re catastrophe bond secondary trading price changes

Gator Re catastrophe bond secondary trading price changes

However, this does not mean the cat bond is safe. With estimated losses still set to rise further, although reports suggest that the estimates to the end of October have been reduced a little, this bond is still considered at risk from 2014 severe thunderstorm losses.

As we wrote at the end of December here, more tornado, hail and severe storm events struck the U.S. in December and these losses won’t yet have been fully added into the 2014 aggregate loss total. It could still be a close run thing for the Gator Re cat bond, however the fact it has traded at just a 10% discount suggests that the market has more confidence in its ability to close out 2014 with only a small loss, or perhaps loss free.

Here’s a list of the cat bonds that traded last week and their prices, where data is available from FINRA’s TRACE system:

Gator Re Ltd. – traded at 90.6, 90.5 and 90.0 all on Friday 9th Jan. Matures 9th Jan 2017.

Foundation Re III Ltd. (Series 2011-1) – traded at 100.42 on 6th Jan and at 100.413 on 7th Jan. Coupon 5.03%. Matures 25th Feb 2015.

Ibis Re II Ltd. (Series 2012-1) – Class A notes traded on 7th Jan at 100.449 and on 8th Jan at 100.43. Coupon 8.365%. Class B notes traded on 7th Jan at 100.791 and on 8th Jan at 100.758. Matures 5th Feb 2015.

Kibou Ltd. (Series 2012-1) – traded on 9th Jan at 100.16 and 100.14. Coupon 5.265%. Matures 16th Feb 2015.

Mythen Ltd. (Series 2012-1) – traded on 8th Jan at 102.240. Coupon 8.506%. Matures 7th May 2015.

Mythen Re Ltd. (Series 2012-2) – traded on 9th Jan at 106.5. Coupon 8.557%. Matures 5th Jan 2017. Note this bond trading well above par, which looking at other prices suggests that this cat bond is a favourite among investors. This may be due to the higher coupon and longer duration to maturity, making it an attractive bond to hold, particularly outside the U.S. wind season as the other exposure for these notes is UK extreme mortality.

Queen Street V Re Ltd. – traded a number of times on 9th Jan at 101.1. Coupon 8.505%. Matures 9th April 2015.

Residential Reinsurance 2011 Ltd. (Series 2011-2) – traded on 8th Jan at 102.45. Coupon 8.785%. Matures 6th June 2015.

East Lane Re IV Ltd. (Series 2011-1) – traded on 7th Jan at 100.77. Coupon 6.665%. Matures 13th March 2015.

Bosphorus 1 Re Ltd. – traded on 7th Jan at 100.1. Coupon 2.515%. Matures 3rd May 2016.

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