It’s been two weeks since we last looked at the Swiss Re Cat Bond Performance Indices to see how they are performing as the market continues to adjust to the post Japan quake market situation. We still don’t know the final toll for catastrophe bonds which were exposed to the 11th March earthquake and tsunami, although it is assumed that one cat bond deal is a total loss.
Muteki Ltd., a catastrophe bond issued by Munich Re providing them with $300m of protection for losses experienced by their reinsurance contract with Japanese cooperative Zenkyoren, has been considered a total loss by the market and all pricing and losses are already being factored into investors portfolios. Other cat bonds remain at risk of being activated by the events in Japan and that could leave investors exposed to second and subsequent events over the rest of this year. We hope that the market discovers the final outcome for these cat bonds soon as the uncertainty can negatively affect sentiment within the market.
One new series of catastrophe bond notes has been issued by Allianz under their Blue Fin SPV. Blue Fin Series 4 provides Allianz with an additional $40m of cover for U.S. hurricanes and earthquakes until May 2013. Allianz also confirmed their commitment to the cat bond market saying that it plays an important part of their reinsurance mix and said they intend to keep issuing cat bonds from time to time. It’s good to see positive comments from an experienced issuer such as Allianz.
So, how are the cat bond indices fairing?
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 declined slightly further in the last fortnight but seems to be stable now reflecting greater confidence returning to the market and more stable prices. At its latest close on the 22nd April this index stood at 93.78.
Next 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 is recovering slightly after the large drop directly after the events in Japan. On the 22nd April it closed at a level of 206.32.
So, the declines that these indices suffered after the Japan quake haven’t been recovered but they have both stabilised to a point where we feel further dramatic declines are unlikely. Even once the final fate of cat bonds exposed to the events in Japan are known we don’t believe they will drop much further as declines are already factored in.
The U.S. hurricane season is approaching fast and it is possible that the indices won’t recover back to pre-Japan levels until the season is over. Typically, these indices see some declines around hurricane season anyway and recover in July (as you can see above), so given the time of year we may have to wait until mid-season to see if the previously experienced index rises return.