Investors love tools that make their lives easier and which help them to make wiser investment decisions. After all, what investors are aiming to do is grow the capital they deploy into an asset class, so portfolio management tools are a welcome solution that allow for better clarity and transparency on their existing and new investment opportunities. Risk Management Solutions (RMS) have today launched a new tool that aims to help catastrophe bond and insurance-linked security investors make better investment decisions.
The new tool from RMS is called Miu Pricing. It’s a collection of reports and metrics, not software based, and can be licensed as a standalone product. Miu Pricing serves both existing subscribers to RMS’ Miu Platform (which offers investors a way to manage a cat bond and ILS portfolio along with analytics, stress testing, information on transactions and more) and according to RMS the next release of the Miu Platform will include features that integrate Miu and Miu Pricing. Miu Pricing is a new service which RMS says will provide fixed income investors with everything they need to make investment decision in both the primary new issue and secondary catastrophe bond markets.
Peter Nakada, managing director of RMS RiskMarkets commented; “The Miu Pricing service aims to make catastrophe bonds and their associated data easier to digest by delivering the information to investors in a manner they’re familiar with – price and yield metrics adjusted for risk. Given how much risk changes due to seasonality and aging of the bonds, we believe Miu Pricing will highlight attractive risk-return opportunities in the secondary market for catastrophe bonds.”
For new cat bonds the Miu Pricing service will provide commentary on the structure of the bonds as well as RMS’ own view of the risk of the transaction. This information will be made available before the bond prices to help investors decide whether the cat bond notes are a good fit for their portfolio. This feature will allow investors to very easily compare how a new cat bond looks under RMS modelling when the deal has been issued using one of the other risk modelling firms.
For secondary market trading of cat bonds, Miu Pricing calculates risk-adjusted prices and yields for each bond. RMS told us that the yield metrics are initially derived thanks to a deal they have in place with broker Rochdale Securities to acquire their latest pricing but that users can then input their own view or prices from an alternative broker after which the metrics will recalculate accordingly. RMS will likely try to integrate pricing from other brokers in the future. The result, RMS say, is detailed risk-adjusted price and yield information for every cat bond in the marketplace. In addition, Miu Pricing provides revised price and risk metrics for investors immediately following a catastrophe event.
We’re not sure how Miu Pricing reacts (if at all being a collection of reports and metrics) to approaching catastrophe events which have not actually had any physical impact yet or whether it would reflect pricing changes during for example an approaching hurricane (such as happened during the approach of hurricane Irene in 2011). We assume that this will depend on how often the pricing from Rochdale Securities is updated, a near real-time feed would be required for this new tool to really reflect the fluctuations in pricing that can occur in the secondary cat bond market.
RMS believe that the improved clarity on cat bond pricing could help to encourage new entrants into the ILS investment space. “We believe the Miu Pricing service will improve our existing Miu clients’ risk-return decisions, and will also help to open up the market to more mainstream fixed income investors who are just entering the asset class,” said Robert Stone, senior director of RMS RiskMarkets.