It’s two weeks since we last looked at the Swiss Re Cat Bond Performance Indices, to see what they can tell us about pricing and returns in the secondary market for catastrophe bonds, and the indices have continued to make gains although the upwards trajectory has slowed significantly. When we last looked the indices were continuing to recover ground lost by the mark-to-market impact of hurricane Sandy, now with total returns having recovered the impact the price return index has slowed right down in January.
While the total return index has managed to fully recover all of the mark-to-market impact that Sandy caused, the price return index has not managed to achieve this and despite most secondary cat bond marks having recovered their individual price losses the market as a whole has slowed down.
Some cat bonds remain priced slightly below the levels seen before Sandy hit in October and for these still exposed cat bonds it’s unlikely a full recovery would be seen until after the next announcement of an insured loss estimate from PCS. Despite the mark-to-market losses and uncertainty that Sandy caused, the storm has not been blamed for any increase in cat bond spreads, as we wrote here last week.
So, first let’s look at 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 remains down in the wake of Sandy and after slowing the gains it was making it has now all but stopped any upwards movement. This index closed at 94.83 on the 18th January. It has now recovered 2.35% since the impact of Sandy, but still has some way to go to get back to pre-Sandy highs. After the strong rises in cat bond price returns through much of 2012 this index has started 2013 sluggishly having only gained 0.14% since the start of the year.
Next we turn to 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). Having recovered from the impact of Sandy the total return of the outstanding cat bond market continue to rise, albeit at a slower rate than before the storm. This index closed at 242.28 on the 18th January and had risen almost 0.5% in the last fortnight.
A generally slower upward movement in the indices is inline with seasonal pricing trends which have seen price returns slow in Q1 before. We haven’t yet seen price declines which were a feature of Q1 2012, caused by strong primary issuance putting the secondary market on the back-burner for many investors. With issuance starting slowly so far in 2013 it is possible that the secondary market will receive more attention from investors this year.
We’ll return to these indices regularly to update you.
The total-return of the catastrophe bond market as measured by these indices was over 10% in 2012.
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