Falling cat bond prices offset cat bond coupon income for Coriolis

Coriolis Capital Ltd., the London based investment firm who specialise in insurance-linked securities, catastrophe bonds, weather hedging instruments such as derivatives and manage two funds, are another ILS fund manager who has struggled to make a positive returns in February. According to this article on Opalesque, Coriolis Capital’s main hedge fund, the CaTpricorn Fund, suffered due to the falling prices of secondary market cat bonds.

We’ve documented the falling secondary market catastrophe bond prices in detail over recent weeks, our regular readers will be aware that it is due to the unusually high issuance in the primary market. Coriolis’ CaTpricorn Fund managed to return a positive 0.12% in February and actually will be one of the few funds to manage a positive return in the month that saw the steepest drop in secondary cat bond marks.

The falling cat bond prices have been sufficient to almost wipe out any coupon income earned on the cat bond positions that Coriolis Capital holds. Martin Jones, portfolio manager at Coriolis Capital, notes in the Opalesque article that this isn’t all bad news as the falling cat bond prices don’t mean a permanent loss for investors, in fact it can mean higher yield-to-maturity if investors are willing to hold their positions to a bonds maturity date.

The article also discusses Coriolis Capital’s weather derivatives portfolio, which makes up a lot of their Horizon Fund, which it says was impacted by freezing weather in Europe and warmer than normal weather in the north east U.S.