Secondary market news

With the insurance-linked securities market continuing its expansion, the secondary market is becoming more liquid, enabling ILS managers to adopt more dynamic allocation strategies while offering improved access to capital at the portfolio level, as per a note by François Divet, Head of ILS at AXA Investment Managers.

Catastrophe bond fund manager Icosa Investments has highlighted current uncertainty over the level of losses the market may face from hurricane Milton, but notes that while some principal losses seem likely there remains a high level of uncertainty over certain structures, especially aggregate cat bonds that have much of their risk periods left to run.

According to analysis by Morningstar DBRS, the total private and public insurance market loss from hurricane Milton is expected to fall in the upper-half of a $30 billion to $60 billion range, with flood insurance losses to the NFIP expected to be up to $10 billion of the total.

In the wake of hurricane Milton’s landfall and damaging impacts on the state of Florida last week the catastrophe bond market fell by 1.34% and a range of outstanding cat bonds had their secondary marks priced down, some more considerably than others.

We understand from sources that, as early as yesterday, some catastrophe bond and insurance-linked securities (ILS) investment fund managers began exploring their options to free up cash from their portfolios in order to be ready for any potential losses, or to take advantage of market opportunities that emerge, due to now major hurricane Milton.

Selling pressure in the secondary market for catastrophe bonds appears to have resulted in record levels of trading activity during the month of May, according to Florian Steiger, CEO of specialist cat bond investment fund manager Icosa Investments AG.

New rules have been implemented in the United States by the Securities and Exchange Commission (SEC) that shorten the standard settlement cycle for most broker-dealer transactions from the current “T+2” to “T+1”, but in our discussions with catastrophe bond trading desks and market participants, the general feeling is one of readiness.

Swiss Re Capital Markets (SRCM) observed an increase in the number of secondary market trades in Q4 of 2023, indicating an “encouraging sign” that the market has fully-recovered from the capacity constraints and loss uncertainty it had faced following Hurricane Ian.

Berenberg, the private banking, investment banking, asset and wealth management specialist, will offer catastrophe bond trading over-the-counter (OTC) within its fixed income division, responding to what it sees as growing client demand for access to cat bond investments.

Ledger Investing, the insurance technology (insurtech) and insurance-linked securities (ILS) focused company, has completed a significant new secondary trade of casualty ILS premiums totalling $250 million and said that it is seeing growing institutional investor interest.