Swiss Re Insurance-Linked Fund Management

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Catastrophe bond price return index reaches highest point of the year


Two weeks ago, when we last looked at the Swiss Re Cat Bond Performance Indices (our last article here) to see what they can tell us about movements in pricing and returns of outstanding catastrophe bonds and the general sentiment of the cat bond and insurance-linked securities marketplace, we saw that the index was approaching a high point for the year. Well the strong price increases in secondary cat bonds has continued and the price return index now sits at a high for the last twelve months.

The price return index has been rising strongly ever since May when the slow decline that was the trend at the start of 2012 reversed and strong price increases took over the in the secondary cat bond market, helped by continuing strong investor demand and seasonal price increases on hurricane exposed cat bonds.

Investor demand continues to play a big role in the secondary cat bond market, helping to ensure that bids for cat bonds are high. This, combined with the benign 2012 Atlantic hurricane season which hasn’t really threatened the U.S. coastline, apart from with Isaac, meaning that hurricane exposed cat bonds have seen strong price increases helping the index to remain buoyant. The U.S. hurricane season technically runs until the end of November, but with the tropics looking quiet and no storms on the horizon it looks like this trend could continue for a bit longer.

These two factors of strong investor demand and a lack of hurricane impacts helped ILS fund managers to their best average single monthly return in August, averaging a return of 0.95% for the month. This was the best single monthly return since September 2010, as we wrote last week here. With September as a whole having seen a rise of around 1.12% for the Swiss Re price return index, and a rise of over 1.7% for the total return index, it seems likely that the ILS funds average returns could be even higher in September than it was in August.

So first we turn to 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 closed on the 28th September at 95.29, up 1.12% for September as a whole and now at the highest point for the last twelve months. Upwards movement is likely to continue while the hurricane season remains benign.

Swiss Re Global Cat Bond Performance Price Return Index

Swiss Re Global Cat Bond Performance Price Return Index

Now 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). This index, as always, has grown strongly when price returns grow. With total returns up over 1.7% for September this denotes strong returns for the investors in the market. This index closed at 237.01 on the 28th September and this upward trend will likely continue.

Swiss Re Global Cat Bond Performance Total Return Index

Swiss Re Global Cat Bond Performance Total Return Index

The growth in these indices over the summer has been both seasonal and a demonstration of the continuing interest in the cat bond and ILS market from investor capital. Investors and ILS fund managers will be delighted with the strong returns achieved in recent months, helping them to recoup all of the price losses suffered from the catastrophe events on 2011.

We’ll update you on the indices in two weeks and will also have commentary on ILS fund performance over September as well.

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