Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Catastrophe bond price and total return indices still rising


Another month has passed since our last post looking at the health of the insurance-linked securities and catastrophe bond indices which are published by Swiss Re. These indices give us a good indication of the health of cat bond prices and returns and also investor activity and appetite.

Again, we can see further gains have been made by both indices with the Swiss Re Cat Bond Price Return index having hit a five year high on the 1st October. It hit a level of 97.65 which is the highest since 2005 when the index dropped significantly after hurricane Katrina.

A lot of this rise is due to the Atlantic hurricane seasons lack of bite this year. We have yet to see any major landfalling storm on the Gulf, Florida or East coast of the U.S. despite the season being very active. This has been particularly unusual as the season has actually been highly active with three more named storms than a full season average so far (and more than a month of the season to go).

First we look at the Swiss Re Cat Bond Price Return Index, tracking the price return for all outstanding USD denominated cat bonds (which you can quote and chart through Bloomberg here). Sitting happily at a five year high of 96.75 this index looks like it has further to go this year.

Swiss Re Cat Bond Price Return Index

Swiss Re Cat Bond Price Return Index

Next we have the Swiss Re Cat Bond Total Return Index, tracking the total rate of return for all outstanding USD denominated cat bonds (which you can quote and chart through Bloomberg here). As ever this index is on the rise and you can really see the strong performance since the hurricane season began in June.

Swiss Re Cat Bond Total Return Index

Swiss Re Cat Bond Total Return Index

If the rest of the hurricane season passes without drama and no other major natural disasters occur in cat bond prone regions then we expect the indices to continue to rise as demand increases from investors for a decent return from the ILS asset class. Whether this investor demand will help to encourage issuance we’re not sure. However conditions do look ripe for further issuance this year. Investors are ready to buy notes when they are issued, particularly notes which allow diversification and issuers are able to get deals out with lower pricing which can make the whole experience more affordable and competitively priced with reinsurance.

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