secondary cat bond

Catastrophe bonds experienced a price recovery in January, promising to help cat bond funds and investors to a stronger month of returns following a quarter where active selling drove prices lower and the cat bond market’s total-return had suffered.

The recent selling off of catastrophe bonds, which has largely provided a mechanism for ILS fund managers to free up capital to put towards renewal deals, has resulted in much higher secondary market trading volumes but this has added mark-to-market price pressure and as a result dented total returns.

Trading of catastrophe bonds in the secondary market has increased in the last fortnight as some ILS fund holders free up capital in advance of the approaching reinsurance renewals, so the benefits of the liquidity within these the fully securitized instruments becomes evident again.

Speaking at the recent SIFMA IRLS 2018 conference in Miami, insurance-linked securities (ILS) market participants and experts highlighted the benefit of increasing the speed of information flow to the market, something which could help the secondary market operate more efficiently when disaster strikes.

An interesting burst of catastrophe bond trading has been recorded on the U.S. Financial Industry Regulatory Authority, Inc. (FINRA) Trace Reporting and Compliance Engine (TRACE) this week, with a high volume of trades and a high number of cat bond names changing hands across just two days.

All broker trading desks for catastrophe bonds and insurance-linked securities (ILS) in the UK and Europe may have to report their secondary trade information to the U.S. Financial Industry Regulatory Authority, Inc. (FINRA) Trace Reporting and Compliance Engine (TRACE), as from January 3rd 2018 under the new MiFID II regime.

According to Artemis sources, the cash balances at some insurance-linked securities (ILS) funds remain high and so there has been a reasonable amount of activity in the secondary catastrophe bond market as some ILS fund managers look to deploy capital raised for the renewals that they failed to deploy.

The record high levels of new catastrophe bond issuance seen in May 2017 has once again helped to stimulate activity in the secondary trading market, as ILS fund managers and investors looked to balance their portfolios and also deal with higher levels of maturities during the month.

The continued high level of issuance in the primary catastrophe bond market in April 2017 continued to drive an increased level of trading activity in the secondary market, as investors and ILS funds looked to swap in and out of positions as they managed new issuance allocations and the flow of maturities as well.

Trading activity in the secondary market for catastrophe bonds has declined in the first-quarter of 2017, compared to the prior year, as primary cat bond issuance accelerated to a new record and investors focused their efforts on new deals, according to Aon Securities.