The fairly brief time considered disaster bond financial investments to recuperate after loss occasions and crises impacting international markets has actually been excellent throughout the sector’s history, with cat bonds displaying a propensity to recuperate from draw-downs much faster than other possession classes.
Hurricane Ian is the latest example, where the disaster bond market has actually already recuperated all of the decrease triggered by this significant disaster loss occasion, as determined by reinsurance company Swiss Re’s Global CAT Bond Total Return Index.
In truth, the disaster bond market, as determined by Swiss Re’s Index, had actually come by approximately 9% in the wake of cyclone Ian.
But, the marketplace as determined by this Index recuperated back to a level above the days prior to cyclone Ian around completion of February this year, so in around 6 months.
Higher rates have actually definitely assisted that healing be more fast, driving the cat bond Index greater.
However, this isn’t the very first time that the cat bond market’s healing has actually been this excellent though, when it comes to previous significant disaster occasions and other crises over its history, the cat bond Index has actually recuperated the decrease fairly rapidly also.
Dirk Schmelzer, Managing Partner and Senior Portfolio Manager at catastrophe bond focused investment manager Plenum Investments explained, “The very short post event healing periods over the past 22 years are excellent and seem to distinguish CAT bond investments from what we see in other asset classes. Of course, it should be borne in mind that the impact of these natural disasters was limited.
“Our own studies show that current risk premium income of CAT Bond Funds is sufficient to recover 12 months aggregate losses from a 1 in 100 year scenario over 4.8 to 7.5 years; but even those numbers compare relatively well to the more frequent and longer periods that other traditional asset classes need to recover from setbacks.”
Plenum Investments kindly shared some data with us, to help in demonstrating the strong recoveries seen over the years in the disaster bond market.
As you can see from the above, the time taken for the Swiss Re cat bond Index to recover back above the pre-event highs can be quite fast.
In addition, some of the occasions included above, particularly the Global Financial Crisis and the Coronavirus pandemic, clearly show that catastrophe bonds as an asset class can deliver significant value in times where other global assets were suffering significant declines.
As we reported already this week, the lower-risk cohort of UCITS catastrophe bond funds have now recuperated back to levels last seen just before hurricane Ian, reflecting the strong performance seen since and the ability of the possession class to recuperate from loss effects.
