Post-Ian cat bond recovery proves narrow; windstorm bonds suffer on

The rebound for aggregate cat bond pricing after Hurricane Ian might be very selective, traceable to the relative lack of flood damage that saved a select slice of the market, leaving windstorm-focused cat bonds still mired in their initial losses.

Analysts at Lane Financials have broken down the post-Ian market moves on 38 bonds pricing below Lane's rule-of-thumb impairment threshold of 80% of par.

Of the group, the rebound is inordinately traceable to just two issuers: Floodsmart and Integrity, each with a focus on flood losses.

Prices for all other cat bonds in the sample “were lowered after Ian and stayed low.”

“If there is a disconnect between October and December pricing it is that the market now seems to feel that it dodged a flood bullet from Ian,” analysts at Lane wrote. Ian’s ultimate last-minute veering away from Tampa may have saved reinsurers from the worst flood outcomes, they added.

The study comes as aggregate cat bond pricing has recovered handily from the initial crash after Hurricane Ian even as modelled loss estimates have held at their initial readings.

One index of pure play cat bond funds showed the market down 5% on dollar-denominated funds within a week and 6.6% within three weeks. But by year's end, the aggregate measure was already 3.1% above those lows as Ian's impact was cut to a 3.7% loss.

The Lane study, in turn, covers only those bonds which broke below the 80% of par threshold post-Ian or started below and trended further down post-Ian. Lane did not consider the price action of bonds which failed to break that threshold.

Lane admits the 80% marker “is not a perfect rule” for identifying the market’s view of which bonds are heading for impairment, but “it has provided a good guide for analysis.”

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