How secondary cat bond pricing reacted to approaching hurricane Irene

As hurricane Irene approached the U.S. eastern seaboard catastrophe bonds changed hands rapidly showing liquidity in the marketplace. we wrote about this before here just after the event, but an interesting graph from Guy Carpenters recent Q3 ILS market report really shows the fluctuation in secondary market cat bond prices much more vividly.

Cat bonds which were most exposed saw significant drops as Irene approached, while others where the level of exposure was less clear dropped but not as dramatically. The Johnston Re cat bonds (details on Johnston Re 2010 and Johnston Re 2011) traded as low as 50% of par as the storm approached because they were thought to be the most exposed to a North Carolina landfalling hurricane.

It’s also interesting to see the speed with which the secondary cat bond prices recovered after it was understood that hurricane Irene was not going to cause as high an insured loss as was initially thought. Exposed cat bonds pricing immediately returned to pre-Irene levels and then continued their seasonal climb as hurricane season drew towards its close.

Secondary pricing on hurricane Irene exposed catastrophe bonds