Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Cat bond returns rising due to reduced risk and better credit conditions


Bloomberg is carrying a great story on catastrophe bond pricing today (available here). The article discusses the recent rise in cat bond price returns and some reasons for that rise.

The Swiss Re Cat Bond Price Return Index, an indicator of the returns investors receive on cat bond investments, has risen over the past six weeks to reach a 2009 high of 90.562. The lowering of hurricane forecasts due to the Pacific El Nino is one reason for the rise as investors feel more secure putting money into cat bonds with the reduced risk of loss a calm hurricane season gives. The other reason for the rise is the general spread of improved confidence in cat bonds as the market has come back to life this year with regular issuance. Improved conditions in the wider credit markets are also having a knock on effect as the capital markets as a whole look more healthy over the last few months.

Investor confidence is critical to the cat bond market as it helps to increase confidence in other investors and issuers and also makes it possible for new deals to get to market successfully. The recent upsizing of deals, as evidenced by Parkton Re and Eurus II, demonstrates the positive effect that investor confidence has on this market.

You can chart the Swiss Re Cat Bond Price Return Index on Bloomberg here. The image below shows the rise of the index throughout 2009 after having suffered significant falls in 2008.

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swiss re cat bond price index

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