Secondary market news

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.

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.