Secondary trading

The downgrade of the tornado-struck Mariah Re 2010-1 bond caused the cat bond pricing index to falter this month, but sparked trading in the notes as investors speculated on the likelihood of more tornadoes this year.

A small amount of exhausted Japanese quake cat bond Muteki traded last month at 0.75 cents to the dollar.

The secondary ILS market recovered quickly last month from the shock of significant changes to hurricane risk models from leading modeller RMS.

Two $100mn Mariah Re cat bonds from US insurer American Family Mutual Insurance have been trading around 90 cents to the dollar after a brutal start to the US tornado season, Trading Risk understands.

Trading on the secondary cat bond market leapt in volume in May ahead of the start of the US hurricane season, increasing to $170mn from $85mn in April, Trading Risk understands.

Chubb's monster $475mn East Lane Re IV bond issue boosted secondary cat bond trading volumes in the first quarter as investors looked to clear their portfolios to participate in the deal.

A combination of high volumes of cat bond maturities and a lack of anticipated new issuance in Q2 2011 will depress pricing as investor capital supply outstrips demand, Aon Benfield Securities (ABS) predicts.

Firms seeking reinsurance solutions for their triple-X and A-XXX redundant reserves are pushing for better pricing and longer-dated deals, as the number of bankers chasing their business rises.

Although Munich Re's Muteki deal became the first cat bond casualty of the 11 March Tohoku disaster, ratings agencies have taken action on a number of second event bonds now considered at risk for the US wind season.

Cat bond values suffered their worst decline since the 2008 financial crisis in March as investors assessed losses after the Japanese earthquake.

Cat bond traders expressed satisfaction with secondary trading liquidity in the immediate aftermath of the 11 March Japan earthquake, with many spying yield opportunities in distressed bond prices.

Modelling firm Risk Management Solutions (RMS) is expected to announce on 25 April whether the 11 March Japan earthquake constitutes a first loss for Platinum Re's Topiary Capital cat bond.