Cat bond funds scratch back nearly a third of Ian-delivered losses

Pure-play cat bond investment funds scratched back another 0.6% in broker valuations during the week ended November 4, cutting the losses delivered by Hurricane Ian by nearly a third to some 4.6%, an industry benchmark has indicated.

A weekly index for dollar-denominated cat bond funds rose 0.6% week over week. Euro-denominated and Swiss franc-denominated classes rose by a milder 0.54% and 0.42% respectively.

Year-to-date the dollar-class funds are now down 3.25% after having hit a YTD high pre-Ian on a 1.45% YTD gain. The YTD loss for euro- and franc-denominated paper is now at 4.9% and 5.3% respectively.

The broad index reading had avoided decline for nine-weeks prior to the Ian landfall to render a YTD high on the Friday, September 23 reading, just five days ahead of Ian's Florida landfall. After two weeks, the dollar-class marker was down 6.6%.

The array of total return performance indexes, published weekly by Plenum Investments, are built on broker quotes for a group of 15 pure-play cat bond UCITS investment funds. Sub-indexes divvy up results by currency unit class and a classification of risk profile subject to semi-annual review.

Of its own funds' exposure, Plenum slashed its initial estimate on the impact of Hurricane Ian. In their core revision, fund managers said their Plenum CAT Bond Fund likely suffered losses of “up to 2%” versus an initial estimate of 4% to 6%. Other funds saw larger revisions.

That kind of volatility in views and valuations could draw bottom fishers amongst investors.

Credit Suisse recently advised investors of “particularly exciting market momentum” in the space. Credit Suisse expects as much as a 110 to 140% increase in yield spread in FY2022, including the 60% already in as of Q2, analysts told markets in a recent article.

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