It’s two weeks since we last looked at the Swiss Re Cat Bond Performance Indices to see how they had been performing and what that could tell us about the state of the catastrophe bond and insurance-linked securities market. At the time we discussed the reasons for the continuing slide in the price return of the outstanding catastrophe bond market. The main reason for the recent slide is the strong issuance in the primary cat bond market. Primary issuance continues to be strong and the indices have taken a real tumble in the last fortnight.
Another cat bond came to the primary market last week as Chubb’s East Lane Re V Ltd. was launched, continuing the busy Q1 period which has now seen eight new cat bond deals come to market and we could well be heading for a record Q1. With the strength of the primary cat bond market still obvious we can only assume that secondary market demand has continued to drop causing a steeper dip in price returns which had a knock on effect on total returns. We haven’t heard of any other factors which could have caused this slide in the indices (yet).
First we turn to 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 took a particularly steep downwards turn in the week ending the 17th February, it then continued downward in the last week although less steeply. The index closed on the 24th February at 92.63 which is just 0.01 off the low point of the year experienced back in August when hurricane Irene threatened the U.S. East Coast.
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 generally been able to keep rising as the overall return of the market grows with new issuance but in the same week that price returns dropped steeply the total return index dropped too. It recovered in the last week to regain some ground and closed on the 24th February at 218.57.
Will the slide in price returns continue? We feel it’s likely to continue for another few weeks and most ILS and cat bond fund managers seem to agree as they believe price returns will start to stabilise later this quarter. We’ll be able to bring you some insight from various ILS fund managers later in the month and it will be interesting to see whether they have a better explanation for this recent slide.