Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

October cat bond issuance stimulates secondary portfolio rebalancing


The two catastrophe bonds issued during the month of October went some way towards satisfying a little of the excess demand for insurance-linked securities (ILS) and as a result stimulated some rebalancing of investors secondary cat bond portfolios during the month.

The two new transactions both saw significant demand from ILS investors which helped them both to increase in size by over 70%, while at the same time pricing dropped. AXA’s Calypso Capital II Ltd. (Series 2013-1) grew by almost 76%, while Catlin’s Galileo Re Ltd. (Series 2013-1) grew by 71%.

Between the two new deals approximately $775m of risk capital hit the cat bond investment market in October, helping to soak up a little of the excess demand from investors looking to deploy capital into the space. Both deals were oversubscribed however, both in terms of amounts and number of investors Artemis understands, which demonstrates there is significant investor appetite for more risk at this time.

Zurich, Switzerland based ILS investment manager Plenum Investments said that the new issuance in the primary cat bond market helped to stimulate some lively trading in the secondary market, but mainly for the purpose of investor portfolio rebalancing. A good amount of European windstorm risk was issued in the two October transactions which will have required some portfolio adjustment to accommodate it, for some ILS investors.

Plenum Investments said that it noticed outstanding U.S. hurricane cat bonds gaining in value once again in October, as the trend continues due to the seasonality inherent at that time of year. Gains in value on U.S. wind cat bonds were not as pronounced as in September though, as the end of the hurricane season draws closer.

Across the market in October, Plenum saw prices increase on U.S hurricane and Japanese typhoon catastrophe bonds, prices decline on Japanese earthquake bonds and prices remain flat on European windstorm and U.S. earthquake cat bonds.

Looking ahead, Plenum said that European windstorm Christian, which occurred at the end of October but is not expected to impact the catastrophe bond market, acted as an early warning of the forthcoming European winter storm season. Plenum expects some spread tightening on European windstorm exposed cat bonds over the coming months.

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