The total-return of the excellent disaster bond market in 2023 reached a document degree of 19.69%, in accordance with full-year information from the Swiss Re Cat Bond Performance Indices.
While the Index failed to succeed in the magic 20% mark by the tip of the yr, it has nonetheless set a particularly excessive bar in 2023 for any future years to compete with.
The Swiss Re disaster bond Index is probably the most extensively used benchmark for the total-returns delivered by the present pool of excellent cat bonds.
As a measure of cat bond market efficiency, this Index has been on-track to set a document because the early a part of final yr.
The Swiss Re disaster bond Index had reached a ten.34% total-return by the tip of June, which set a brand new document for any half-year in its historical past.
Then, by early October, the Swiss Re cat bond Index had surpassed 16%, which noticed it beating the earlier full-year document, cementing a brand new document funding return for the disaster bond market, in accordance with this benchmark, as the very best annual whole return of the Swiss Re Global Cat Bond Index had beforehand been 15.43% set approach again in 2007.
We mentioned on the time that the landmark 20% return was in sight, however as seasonality begins to drop out of the returns of hurricane disaster bonds after the season ends in November, the total-return of the cat bond market, as measured by Swiss Re’s Index, failed to succeed in that mark, to finish the yr’s last calculation of the cat bond Index for a 19.69% total-return.
As we’ve reported earlier than, any document returns set in 2023 might show exhausting to repeat or beat in future years.
As effectively because the rising pricing of latest disaster bond issuance during the last yr or two, that has clearly boosted cat bond market returns, a mix of different elements additionally swelled the cat bond market’s efficiency in 2023.
These embrace, the a lot increased risk-free returns added due to the floating-rate nature of the cat bond asset class that contribute to the total-return determine, a few of the macro results that had been nonetheless influencing the market initially of 2023, and maybe most significantly the restoration in worth of many US wind uncovered cat bonds post-hurricane Ian.
These elements might by no means come collectively to be repeated in fairly the identical approach once more, though there may be at all times an opportunity of comparable elements coinciding to drive a stronger total-return once more in future years.
But, 2023 is unlikely to be repeated in exactly the identical approach and with new issuance disaster bond pricing and spreads having now stabilised, some say roughly 10% down on its peak of earlier this yr, it stays to be seen if we expertise these ranges of pricing once more any time quickly.
Still although, the total-return potential of the disaster bond marketplace for 2024 additionally stays excessive, with cat bond fund managers predicting double-digit return potential once more.
Cat bond funds have seen a wide-spread by way of efficiency during the last yr, with some managing excessive double-digits to even simply over 20% for full-year 2023.
The purpose some cat bond funds have outpaced the Swiss Re Index, is that the Swiss Re Cat Bond Performance Indices solely embrace pure disaster bonds, so no life, well being, specialty strains or cyber cat bonds are included in it.
Given there have been 4 cyber disaster bonds issued within the last quarter of 2023, every providing comparatively high-yields and a few of the different specialty strains sort cat bonds are additionally higher-yielding, that is a technique cat bond funds have managed above 20%.
It’s additionally essential to notice that some cat bonds funds do additionally embrace personal offers and reworked reinsurance offers, so aren’t a transparent comparability to the Swiss Re Index.
But, variations apart, the efficiency of the disaster bond market has been stellar in 2023, cementing its place as considered one of (if not the) greatest performing different asset courses of the yr.
Download your copy of our model new disaster bond market report, reviewing This autumn and full-year 2023 cat bond issuance.
You can analyse the pricing and spreads of latest disaster bond issuance in our charts displaying cat bond pricing and spreads, in addition to cat bond multiples-at-market, by yr and quarter.
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All of our charts are up to date as new disaster bond points full, and as older issuances mature, primarily based on the info in Artemis’ in depth disaster bond Deal Directory.
