Secondary cat bond market activity declines on brisk issuance: Aon

by Artemis on May 12, 2017

Trading activity in the secondary market for catastrophe bonds has declined in the first-quarter of 2017, compared to the prior year, as primary cat bond issuance accelerated to a new record and investors focused their efforts on new deals, according to Aon Securities.

Aon’s analysis suggests that cat bond investor focus was on cat bond maturity and primary issuance, than on trading in the secondary market in the last quarter, as the record level of issuance meant that capital from maturities could be put back to work in new risks.

Aon analysed the data available from FINRA’s Trade Reporting and Compliance Engine (TRACE), which shows that there were 175 cat bond trades totaling $211.7 million of volume during the first-quarter of 2017.

This is a decline in trade volume of 44% and dollar volume of 31% compared to the prior year first-quarter, according to Aon.

Trade volume was also down 13% on the last quarter of 2016, while the dollar value of the trades was up by 5% on Q4 2016.

Aon Securities saw cat bond trading activity as “inconsistent” up until March in the quarter, thanks to the high number of maturities at the beginning of the period.

“As new issuances were frequently announced to the market, investors were given plenty of opportunity to utilize their freed-up capital,” Aon explained.

Investors also looked to free up capacity to take on new issues, using the secondary market to trade out of unwanted older cat bond positions, Aon said.

During the quarter two cat bonds were traded an impressive ten or more times, the Caelus Re Ltd Series 2016-1 and Bosphorus Re Ltd. Series 2015-1 transactions.

Cat bond trading volume will of course have been higher, as only U.S. broker dealers are required to report their trades in TRACE, but the figures give a good way to measure activity compared to previous periods.

Given the level of activity seen so far in the primary cat bond market in the second-quarter, it will be interesting to see whether the secondary market picks up steam.

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