secondary cat bond

Two outstanding per-occurrence catastrophe bond tranches sponsored by Louisiana Citizens Property Insurance Corporation have been marked down much further on some broker pricing sheets in the last week, with secondary market bid pricing now implying a market expectation of a significant loss of principal.

A number of catastrophe bonds have been marked down in end of month secondary market pricing sheets, with some of the anticipated names suffering declines of between 25% and 35% in value.

The volume of catastrophe bond notes traded on the secondary market rose again in May 2021, as insurance-linked securities (ILS) fund managers and cat bond investors adjusted their portfolios to accept the strong almost $3.3 billion of primary issuance seen during the month.

Heritage Insurance Holdings, Inc., the Florida focused property and casualty insurer, has benefited from more reinsurance recoveries under its Citrus Re catastrophe bond series of deals, with more tranches seeing principal reductions, one of which has now been allowed to mature.

The catastrophe bond market has been demonstrating its “positive diversification characteristics” during the ongoing Covid-19 coronavirus pandemic, according to specialist ILS fund manager Plenum Investments.

The catastrophe bond market is once again demonstrating its financial liquidity, as secondary trading volumes have risen driven by certain investors looking to sell their positions at a time when volatility in the broader financial markets is extremely high due to the coronavirus pandemic.

One of the loss-exposed tranches of Florida focused property and casualty insurer Heritage Insurance Holdings, Inc’s Citrus Re Ltd. catastrophe bonds has been partially redeemed by investors, with now $36.7 million of collateral from the originally $125 million tranche still retained by the sponsor and its maturity further extended.

Beech Hill Securities, Inc., a New York based full-service broker-dealer now has a catastrophe bond trading capability.

Catastrophe bond funds have faced pressure on positions in May thanks largely to increasing cat bond spreads, as the secondary market responded to primary issuance premiums, as well as high levels of liquidity that can impact values of positions.

A number of at-risk of loss catastrophe bonds have been traded at rock-bottom distressed prices, suggesting investors have sought to offload bonds they believe will face a total loss, while a buyer (perhaps a single investor) is willing to bet there could be some improvement in the outlook.