Swiss Re Insurance-Linked Fund Management

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Swiss Re cat bond index recovers some of the Ian decline. US wind up nearly 14%


The catastrophe bond market index calculated by Swiss Re Capital Markets has recovered a relatively significant chunk of the ground lost after hurricane Ian, at its last calculation on Friday 28th October 2022.

hurricane-ian-cat-bond-pricesThe latest weekly movement in the Swiss Re Global Cat Bond Index provides further support for the thesis that catastrophe bond market losses from hurricane Ian will ultimately prove lower than the initial mark-to-market impact caused by the major storm.

As we reported earlier today, bid prices recovered somewhat for a number of catastrophe bond positions that had been deemed particularly exposed to potential losses from hurricane Ian.

A number of the most Florida wind exposed positions saw their prices appreciate in the last week, as well as some of the NFIP’s flood cat bonds.

Now, the latest data from the Swiss Re Global Cat Bond Index reflects the appreciating prices of certain hurricane Ian exposed cat bonds, resulting in a relatively significant upward movement in the Index as of Friday.

The Swiss Re Global Cat Bond Index provides a broad measure of the cat bond market, as calculated by Swiss Re Capital Markets, the insurance-linked securities (ILS) specialist arm of the global reinsurance firm of the same name.

The Swiss Re cat bond index has tracked catastrophe bond market performance with its cat bond indices since 2007, and is seen as a reliable bellwether for the health of the outstanding cat bond stock and marketplace.

The Swiss Re Global Cat Bond Index was down roughly -10% at the indices’ first calculation point after hurricane Ian’s landfall, on September 30th.

At the same point, the Swiss Re US Wind Cat Bond Performance Index, that tracks the aggregate performance of USD denominated cat bonds exposed exclusively to US Atlantic hurricane, had fallen by a more significant roughly -32%.

There have been some small weekly increases in the Index since then, but the latest calculation as of October 28th is more meaningful.

The Swiss Re Global Cat Bond Index rose by almost 2.3% on Friday, while the Swiss Re US Wind Cat Bond Performance Index was up much more, by just under 14%.

The movement will reflect the positive bid price adjustments in some hurricane Ian-exposed cat bonds that we reported earlier today.

However, with many non-Ian affected cat bonds also having experienced price declines as spreads have moved in recent weeks and as the market prices in future higher cat bond price expectations, the recovery of lost ground could be an important signal of reduced cat bond market loss expectations, compared to right after Ian’s landfall.

The market, of cat bond fund managers and cat bond investors, continues to await formal loss notifications from cat bond sponsors, that will eventually provide more clarity of the eventual impacts of hurricane Ian.

But, with third-quarter results being reported and more information on claims becoming available, the prices have been adjusted for a number of the cat bonds originally thought to be particularly exposed to the storm.

As we previously reported, realised losses from hurricane Ian for the catastrophe bond market could end up being as little as half of the mark-to-market-wide decline initially seen in the outstanding cat bond market.

As more data emerges, on cat bond pricing and this Index that tracks the market’s performance, it seems increasingly likely and the very conservative initial marking of cat bonds becomes more apparent.

That’s not to say the eventual losses for some bonds could see their prices worsen, it remains very early in the process. But the signs continue to suggest the eventual loss will not be as high as cat bonds and portfolios were originally marked, which may see some recoveries of value flow through to cat bonds funds that also marked conservatively over the coming weeks.

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