Catastrophe bonds rally after hurricane wreaks havoc
Hurricane Irma’s fizzling-out sparked a relief rally in catastrophe bonds as hedge funds and pension investors took advantage of rock bottom prices to plough more money into the market, new figures show.
The index tracking hurricane cat bonds — IOUs bought by investors from reinsurance companies to cover hurricane and earthquake risks — reversed big losses in the wake of the hurricane after some had to fallen to 50% discounts.
The Aon All Bond Index Linked Securities index, collated by insurer Aon, rose nearly 6% from between Friday 8 September and Wednesday 13 September, fresh figures show, with the index tracking hurricane bonds spiking 8.4% higher.
Hurricane-linked bonds rallied a further 6% in the final two days of last week.
The hurricane made US landfall on September 10.
Overall the index is down 9.4% for the month so far and the hurricane bond index down 12% despite the fillip post-Irma.
Market sources said some cat bonds traded at 50 cents in the dollar before rallying 36% to as high as 68 cents. Around half of cat bonds in the $25 billion market are tied to Florida risks.
Risk consultancy AIR Worldwide has lowered the cost of the storm to between $32 billion and $50 billion. Lloyd’s of London had forecast losses up to $130 billion if Irma hit Florida.
Investors are now bracing for the impact of Hurricane Maria, which devastated Dominica today.
