The Swiss Re Cat Bond Performance Indices have continued to decline for the fourth consecutive week since the market began to take in the devastating effects of the 11th March earthquake and tsunami in Japan. The impact on catastrophe bonds is starting to become clearer as information emerges from ratings agencies and issuers which suggests that a few deals are likely to be exposed to some degree of loss.
As a result, the size of the loss that the cat bond market will be exposed to is clearer and investors more prepared for the effect that will have on their portfolios, any losses are likely to be well spread around the market. The indices have slipped further this week but at a lower rate than the previous week and it is likely that will continue to slow as the market impact becomes clear.
First we look at the Swiss Re Global Cat Bond Performance Price Return index first, tracking the price return for all outstanding USD denominated cat bonds (which you can quote and chart through Bloomberg here). This index has dropped from its close on the 25th March at 94.69 to close on the 1st April at 94.01 (a fall of 0.7%, a definite slow down in decline compared to previous weeks). Since the disaster in Japan this index has dropped 4.25%.
Now we turn to the Swiss Re Global Cat Bond Performance Total Return index, tracking the total return of the basket of natural catastrophe bonds (which you can quote and chart through Bloomberg here). This index has dropped from its last close of 207.01 to close at 205.86 on the 1st April (a fall of 0.55%). Since the earthquake this index has dropped 3.7%.
So the decline in these indices has definitely slowed somewhat in the past week. It’s too early to predict how much lower they could go but our feeling is that they are approaching a low point. Once the final tally of losses to cat bond investors is understood we expect them to at the last level out and more likely regain some ground. Of course new issuance helps these indices rise so it may not be until a new cat bond is issued that we see any sort of proper recovery.