Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Secondary cat bond marks continued decline in last week


Once again, every catastrophe bond trade recorded by FINRA’s TRACE system in the last week is at a lower price level than the cat bond’s previous trade. Fewer of the short-dated cat bonds traded, with more of a focus on higher-yield 2016 maturing bonds.

Artemis has recorded over $2.8 billion of catastrophe bonds maturing already in 2015, with another $2.5 billion or so to come before the end of the first-half. As trading of the short-dated cat bonds has been so brisk this year already, it is to be expected that this begins to slow as maturities disappear from the market and investors seek to hold the remaining positions until their maturity.

As a result a few different cat bonds have traded in the last week. It’s important to note that the trades recorded by FINRA are only those transacted across U.S. trading desks where the data has been submitted to TRACE.

Of the six cat bonds that FINRA recorded trades for in the last seven days, five of them have a coupon of 8% or above. It’s likely that these bonds are, like the higher-yielding short-dated bonds Artemis wrote about last week, attractive to investors that have return targets to meet and for whom the liquidity of cat bonds is important.

Those selling these positions could be ILS investment managers that are looking to free up capital to be deployed into new deals or into collateralized reinsurance and private ILS, where the potential returns could be higher but liquidity lower.

Once again, every one of the higher yielding cat bonds that traded saw the price come down since the last time they changed hands. This has been a trend for a number of weeks, which along with seasonality perhaps signalling an uncertainty over which way prices go next and a desire to see some stability in premiums.

These cat bonds continue to be priced above par, however, which means those selling can stand to profit if they have held them since issuance, something that could make selling higher-yielding bonds attractive if a fund manager wants to redirect its capital into private deals.

Here is a list of the catastrophe bonds that traded last week, where data is available from FINRA’s TRACE system, their most recent prices and where they traded previously:

Tar Heel Re Ltd. (Series 2013-1) – Traded at 105.2 on 28th Jan, flat with last trade on 23rd Jan 2015. Coupon 8.533%. Tar Heel matures in May 2016.

Atlas Reinsurance VII Limited – Class A notes traded at 102.55 on 30th Jan, down from 103.9 on 22nd Oct 2014. Coupon 8%. Matures Jan 2016.

Bosphorus 1 Re Ltd. – Traded at 100.05 on 29th Jan, down slightly from last trade on 7th Jan 2015. Coupon 2.515%. Matures March 2016.

East Lane Re V Ltd. (Series 2012-1) – Class A notes traded at 105.9 on 30th Jan, down from 1071. on 1st Dec 2014. Coupon 9.038%. Matures March 2016.

Lakeside Re III Ltd. – Traded at 103.85 on 28th Jan, down from 104 on 16th Jan 2015. Coupon 8.03%. Matures January 2016.

Mythen Ltd. (Series 2012-1) – Traded at 101.77 on 29th Jan, down from 102.21 on 8th Jan 2015. Coupon 8.506%. Matures May 2015.

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